Q4 2026 KLA Corp Earnings Call

July 28, 2026

Speaker #1: Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June Quarter, 2026 earnings conference call and webcast.

Operator: Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June Quarter 2026 Earnings Conference Call and Webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Speaker #1: All participant lines have been placed on listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

Speaker #1: If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2.

Operator: If you wish to remove yourself from the queue, please press star two. Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Speaker #1: Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I would now like to turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics.

Speaker #1: Please go ahead.

Speaker #2: Welcome to the June 2026 quarterly earnings call. I'm joined by our CEO, Rick Wallace, and our CFO, Bren Higgins. We will discuss today's results as well as our outlook, which we released after the market closed and is available on our website.

Kevin Kessel: Welcome to the June 2026 quarterly earnings call. I am joined by our CEO, Richard Wallace, and our CFO, Bren Higgins. We will discuss today's results as well as our outlook, which we released after the market close and is available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non-GAAP financial basis, unless otherwise specified. All full-year references we make refer to calendar years. The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results. It should also be noted that effective 11 June 2026, KLA completed a 10-for-1 stock split. All current and prior EPS and other per share amounts referenced on this call and our materials have been adjusted to reflect the split. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings.

Speaker #2: Along with supplemental materials. We are presenting today's discussion and metrics on a non-gap financial basis, unless otherwise specified. All fully references we make refer to calendar years.

Speaker #2: The earnings materials contain a detailed reconciliation of GAAP and non-GAAP results. It should also be noted that, effective June 11, 2026, KLA completed a 10-for-1 stock split.

Kevin Kessel: The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results. It should also be noted that effective 11 June 2026, KLA completed a 10-for-1 stock split. All current and prior EPS and other per share amounts referenced on this call and our materials have been adjusted to reflect the split. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings.

Speaker #2: All current and prior EPS and other per-share amounts referenced on this call and in our materials have been adjusted to reflect the split. Our comments today are subject to risks and uncertainties, as reflected in the disclosure of risk factors in our SEC filings.

Speaker #2: Any forward-looking statements, including those we make on the call today, are also subject to those risks, and KLA cannot guarantee that those forward-looking statements will come true.

Kevin Kessel: Any forward-looking statements, including those we make on the call today, are also subject to those risks, KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. For any subsequent updates, please refer to KLA's IR website, which also contains investor events, presentations, corporate governance information, and links to our SEC filings. We will begin the call with Rick providing commentary on the quarter and our overall business environment, followed by Brynn with financial highlights and our outlook. Now, over to Rick.

Speaker #2: Our actual results may differ significantly from those projected in our forward-looking statements. For any subsequent updates, please refer to KLA's IR website, which also contains investor events, presentations, corporate governance information, and links to our SEC filings.

Kevin Kessel: For any subsequent updates, please refer to KLA's IR website, which also contains investor events, presentations, corporate governance information, and links to our SEC filings. We will begin the call with Rick providing commentary on the quarter and our overall business environment, followed by Brynn with financial highlights and our outlook. Now, over to Rick.

Speaker #2: We will begin the call with Rick providing commentary on the quarter and our overall business environment, followed by Bren with financial highlights and our outlook.

Speaker #2: Now, over to Rick.

Speaker #3: Thanks, Kevin. For the June quarter, KLA results were strong, with revenue, profitability, and earnings per share all above the midpoint of guidance. Specifically, revenue reached a record 3.66 billion dollars, supported by accelerating investment tied to AI infrastructure, continued strength in leading-edge foundry logic, and increasing process control intensity, across memory and advanced packaging.

Richard Wallace: Thanks, Kevin. For the June quarter, KLA results were strong, with revenue, profitability, and earnings per share all above the midpoint of guidance. Specifically, revenue reached a record $3.66 billion, supported by accelerating investment tied to AI infrastructure, continued strength in leading-edge foundry logic, and increasing process control intensity across memory and advanced packaging. These results continue to underscore KLA's market leadership and the growing strategic importance of process control as semiconductor innovation becomes more complex. The industry is in a period of accelerating investment driven by AI compute, a robust design environment, larger and more sophisticated device architectures, rising HVM adoption, and increased advanced packaging requirements. Across these inflection points, customers are relying on KLA's portfolio of systems, services, and expertise to accelerate yield learning, improve productivity, and scale new technologies into high-volume manufacturing.

Rick Wallace: Thanks, Kevin. For the June quarter, KLA results were strong, with revenue, profitability, and earnings per share all above the midpoint of guidance. Specifically, revenue reached a record $3.66 billion, supported by accelerating investment tied to AI infrastructure, continued strength in leading-edge foundry logic, and increasing process control intensity across memory and advanced packaging.

Speaker #3: These results continue to underscore KLA's market leadership and the growing strategic importance of process control as semiconductor innovation becomes more complex. The industry is in a period of accelerating investment driven by AI compute, a robust design environment, larger and more sophisticated device architectures, rising HBM adoption, and increased advanced packaging requirements.

Rick Wallace: These results continue to underscore KLA's market leadership and the growing strategic importance of process control as semiconductor innovation becomes more complex. The industry is in a period of accelerating investment driven by AI compute, a robust design environment, larger and more sophisticated device architectures, rising HVM adoption, and increased advanced packaging requirements.

Speaker #3: Across these inflection points, customers are relying on KLA's portfolio of systems, services, and expertise to accelerate yield learning, improve productivity, and scale new technologies into high-volume manufacturing.

Rick Wallace: Across these inflection points, customers are relying on KLA's portfolio of systems, services, and expertise to accelerate yield learning, improve productivity, and scale new technologies into high-volume manufacturing.

Speaker #3: KLA remains uniquely positioned on the critical path of AI infrastructure expansion, where the increasing number and sophistication of leading-edge designs that are consuming a growing percentage of new wafer starts are driving greater demand for process control.

Richard Wallace: KLA remains uniquely positioned on the critical path of AI infrastructure expansion, where the increasing number and sophistication of leading-edge designs that are consuming a growing percentage of new wafer starts are driving greater demand for process control. The rapid expansion of the AI ecosystem requires more advanced logic and memory, new complex manufacturing and packaging flows, and additional KLA systems and services to ramp yield and sustain high-volume production. Since our March Investor Day, demand signals across AI infrastructure have strengthened materially, supported by accelerating hyper-scale data center investment, rising AI compute requirements, and broader adoption of AI-enabled applications. Customer engagements remain robust, visibility continues to improve, and the wafer equipment market outlook continues to expand. We expect momentum across our business to accelerate through the H2 of calendar 2026 and for significant growth to continue in calendar 2027.

Rick Wallace: KLA remains uniquely positioned on the critical path of AI infrastructure expansion, where the increasing number and sophistication of leading-edge designs that are consuming a growing percentage of new wafer starts are driving greater demand for process control.

Speaker #3: The rapid expansion of the AI ecosystem requires more advanced logic and memory, new complex manufacturing and packaging flows, and additional KLA systems and services to ramp, yield, and sustain high-volume production.

Rick Wallace: The rapid expansion of the AI ecosystem requires more advanced logic and memory, new complex manufacturing and packaging flows, and additional KLA systems and services to ramp yield and sustain high-volume production. Since our March Investor Day, demand signals across AI infrastructure have strengthened materially, supported by accelerating hyper-scale data center investment, rising AI compute requirements, and broader adoption of AI-enabled applications.

Speaker #3: Since our March Investor Day, demand signals across AI infrastructure have strengthened materially, supported by accelerating hyperscale data center investment, rising AI compute requirements, and broader adoption of AI-enabled applications.

Speaker #3: Customer engagements remain robust, visibility continues to improve, and the wafer equipment market outlook continues to expand. We expect momentum across our business to accelerate through the second half of calendar 2026 and for significant growth to continue in calendar 2027.

Rick Wallace: Customer engagements remain robust, visibility continues to improve, and the wafer equipment market outlook continues to expand. We expect momentum across our business to accelerate through the H2 of calendar 2026 and for significant growth to continue in calendar 2027.

Speaker #3: In highlighting KLA's unique position in the market, AI-driven design activity and HBM adoption are only part of the process control story. Process control intensity has increased due to faster product cycles, higher-value wafer mass, more rigorous device performance specifications, growing design variability, and advanced packaging.

Richard Wallace: In highlighting KLA's unique position in the market, AI-driven design activity and HVM adoption are only part of the process control story. Process control intensity has increased due to faster product cycles, higher value wafer masks, more rigorous device performance specifications, growing design variability, and advanced packaging. We now expect our advanced packaging process control systems revenue to grow to approximately $1.1 billion in calendar 2026, up more than 70% year over year, above our prior expectations of high 50% growth and almost two times faster than the advanced packaging market. Outside of our core Semiconductor Process Control business, high-performance compute packages and integration are also driving our specialty process, PCB, and component inspection businesses, augmenting the company's growth momentum. KLA entered many of these markets in 2019 as part of the Orbotech acquisition.

Rick Wallace: In highlighting KLA's unique position in the market, AI-driven design activity and HVM adoption are only part of the process control story. Process control intensity has increased due to faster product cycles, higher value wafer masks, more rigorous device performance specifications, growing design variability, and advanced packaging.

Speaker #3: We now expect our advanced packaging process control systems revenue to grow to approximately 1.1 billion dollars in calendar 2026, up more than 70% year over year, above our prior expectations of high 50% growth and almost 2 times faster than the advanced packaging market.

Rick Wallace: We now expect our advanced packaging process control systems revenue to grow to approximately $1.1 billion in calendar 2026, up more than 70% year over year, above our prior expectations of high 50% growth and almost two times faster than the advanced packaging market.

Speaker #3: Outside of our core semiconductor process control business, high-performance compute packages and integration are also driving our specialty process, PCB, and component inspection businesses, augmenting the company's growth momentum.

Rick Wallace: Outside of our core Semiconductor Process Control business, high-performance compute packages and integration are also driving our specialty process, PCB, and component inspection businesses, augmenting the company's growth momentum. KLA entered many of these markets in 2019 as part of the Orbotech acquisition.

Speaker #3: KLA entered many of these markets in 2019 as part of the Orbitech acquisition. Our investment thesis for the transaction was centered around the rising value of the chip package, and the ability for the KLA operating model to drive product strategy, business execution, to take advantage of this evolving trend.

Richard Wallace: Our investment thesis for the transaction was centered around the rising value of the chip package and the ability for the KLA operating model to drive product strategy, business execution to take advantage of this evolving trend. With these combined products expected to grow over 25% in calendar 2026, we are encouraged by the future opportunities in these markets. Finally, in the Q2, KLA Services delivered $820 million in revenue, up 17% year over year, as customers rely on KLA to maximize tool performance, productivity, and availability across a growing installed base. In summary, our Q2 results demonstrate the strength of KLA's market position and operating model execution. Looking ahead, customer engagement and demand signals continue to strengthen, and we are adding capacity to support expected demand.

Rick Wallace: Our investment thesis for the transaction was centered around the rising value of the chip package and the ability for the KLA operating model to drive product strategy, business execution to take advantage of this evolving trend. With these combined products expected to grow over 25% in calendar 2026, we are encouraged by the future opportunities in these markets.

Speaker #3: With these combined products, expected to grow over 25% in calendar 2026, we encouraged by the future opportunities in these markets. Finally, in the quarter, KLA services delivered 820 million revenue in revenue, up 17% year over year, as customers rely on KLA to maximize tool performance, productivity, and availability across a growing installed base.

Rick Wallace: Finally, in the Q2, KLA Services delivered $820 million in revenue, up 17% year over year, as customers rely on KLA to maximize tool performance, productivity, and availability across a growing installed base. In summary, our Q2 results demonstrate the strength of KLA's market position and operating model execution. Looking ahead, customer engagement and demand signals continue to strengthen, and we are adding capacity to support expected demand.

Speaker #3: In summary, our June quarter results demonstrate the strengths of KLA's market position and operating model execution. Looking ahead, customer engagement and demand signals continue to strengthen, and we are adding capacity to support expected demand.

Speaker #3: Growth is accelerating in the second half, and we are well-positioned to execute amid a strong demand environment across all segments over the remainder of calendar 2026 and into calendar 2027.

Richard Wallace: Growth is accelerating in the H2 and we're well-positioned to execute in a strong demand environment across all segments over the remainder of calendar 2026 and into calendar 2027. With that, I'll turn the call over to Brad to discuss the quarter's financial highlights.

Rick Wallace: Growth is accelerating in the H2 and we're well-positioned to execute in a strong demand environment across all segments over the remainder of calendar 2026 and into calendar 2027. With that, I'll turn the call over to Brad to discuss the quarter's financial highlights.

Speaker #3: And with that, I'll turn the call over to Bren to discuss the quarter's financial highlights.

Speaker #2: Thanks, Rick. KLA's June quarter results reflect strong sequential and year-over-year growth in an industry-leading profitability profile. This reinforces our market leadership and consistent execution, which has been made possible by the dedication of our customer-focused global teams.

Bren Higgins: Thanks, Rich. KLA's Q2 results reflect strong sequential and year-over-year growth and an industry-leading profitability profile. This reinforces our market leadership and consistent execution, which is made possible by the dedication of our customer-focused global teams. Revenue of $3.66 billion was above the midpoint of guidance of $3.575 billion and rose 7% sequentially and 15% year-over-year. Non-GAAP diluted EPS was $1.5, and GAAP diluted EPS was $1.04, each at the upper end of the respective guidance ranges. Gross margin was 62.4%. This was also at the upper end of our guidance range, driven by a more favorable services mix than model and manufacturing scale that served as positive offsets to the challenging memory pricing environment and tariff headwinds. Operating expenses were $682 million and included $399 million in R&D and $283 million in SG&A. Operating margin was 43.7%. Incremental operating margin in the quarter was 59%.

Speaker #2: Revenue of $3.66 billion was above the midpoint of guidance of $3.575 billion, and rose 7% sequentially and 15% year over year. Non-GAAP diluted EPS was $1.05, and GAAP diluted EPS was $1.04, each at the upper end of the respective guidance ranges.

Bren Higgins: Non-GAAP diluted EPS was $1.5, and GAAP diluted EPS was $1.04, each at the upper end of the respective guidance ranges. Gross margin was 62.4%. This was also at the upper end of our guidance range, driven by a more favorable services mix than model and manufacturing scale that served as positive offsets to the challenging memory pricing environment and tariff headwinds.

Speaker #2: Gross margin was 62.4%. This was also at the upper end of our guidance range, driven by a more favorable services mix than modeled, and manufacturing scale that served as positive offsets to the challenging memory pricing environment and tariff headwinds.

Speaker #2: Operating expenses were $682 million and included $399 million in R&D and $283 million in SG&A. Operating margin was 43.7%. Incremental operating margin in the quarter was 59%.

Bren Higgins: Operating expenses were $682 million and included $399 million in R&D and $283 million in SG&A. Operating margin was 43.7%. Incremental operating margin in the quarter was 59%.

Speaker #2: Non-GAAP net income was $1.39 billion, GAAP net income was $1.36 billion, cash flow from operations was $906 million, and free cash flow was $817 million.

Bren Higgins: Non-GAAP net income was $1.39 billion. GAAP net income was $1.36 billion. Cash flow from operations was $906 million, and free cash flow was $817 million. The company had 1.315 billion diluted weighted average shares outstanding for the quarter. The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides. Switching to the balance sheet, KLA ended the quarter with $4.9 billion in total cash equivalents, and marketable securities and $5.9 billion of debt. The company maintains a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies. KLA's strong cash generation continues to support meaningful capital return to shareholders. In the Q2, free cash flow was $817 million, and KLA returned $876 million to shareholders, including $571 million in share repurchases and $305 million in dividends.

Speaker #2: The company had 1.315 billion diluted weighted average shares outstanding for the quarter. The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides.

Speaker #2: Switching to the balance sheet, KLA ended the quarter with $4.9 billion in total cash, cash equivalents, and marketable securities, and $5.9 billion of debt.

Bren Higgins: Switching to the balance sheet, KLA ended the quarter with $4.9 billion in total cash equivalents, and marketable securities and $5.9 billion of debt. The company maintains a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies.

Speaker #2: The company maintains a flexible and attractive bond maturity profile, supported by investment-grade ratings from all three major rating agencies. KLA's strong cash generation continues to support meaningful capital return to shareholders.

Bren Higgins: KLA's strong cash generation continues to support meaningful capital return to shareholders. In the Q2, free cash flow was $817 million, and KLA returned $876 million to shareholders, including $571 million in share repurchases and $305 million in dividends.

Speaker #2: In the June quarter, free cash flow was $817 million, and KLA returned $876 million to shareholders, including $571 million in share repurchases and $305 million in dividends.

Speaker #2: Over the past 12 months, total capital returns were $3.3 billion, and our free cash flow margin was 28%. KLA has made meaningful investments in our working capital and facilities to support the current growth environment.

Bren Higgins: Over the past 12 months, total capital returns were $3.3 billion and free cash flow margin was 28%. KLA has made meaningful investments in our working capital and facilities to support the current growth environment. Given the expected aggregate investment in wafer equipment over the next several years, our expectation is that these investments will continue to ensure that the company is positioned to take advantage of the strong market opportunity and deliver on our customer commitments. This consistent cash generation, combined with our disciplined approach to capital allocation, supports investment in future growth opportunities while delivering attractive returns to shareholders. The industry outlook for 2026 and 2027 continues to improve, with visibility extending. Despite well-chronicled fab space limitations, we continue to see the market for wafer equipment strengthening as customers accelerate their delivery expectations across all segments.

Speaker #2: Given the expected aggregate investment in wafer equipment over the next several years, our expectation is that these investments will continue to ensure that the company is positioned to take advantage of the strong market opportunity and deliver on our customer commitments.

Bren Higgins: Given the expected aggregate investment in wafer equipment over the next several years, our expectation is that these investments will continue to ensure that the company is positioned to take advantage of the strong market opportunity and deliver on our customer commitments. This consistent cash generation, combined with our disciplined approach to capital allocation, supports investment in future growth opportunities while delivering attractive returns to shareholders.

Speaker #2: This consistent cash generation, combined with our disciplined approach to capital allocation, supports investment in future growth opportunities while delivering attractive returns to shareholders. The industry outlook for 2026 and 2027 continues to improve, with visibility extending despite well-chronicled fab space limitations. We continue to see the market for wafer equipment strengthening as customers accelerate their delivery expectations across all segments.

Bren Higgins: The industry outlook for 2026 and 2027 continues to improve, with visibility extending. Despite well-chronicled fab space limitations, we continue to see the market for wafer equipment strengthening as customers accelerate their delivery expectations across all segments.

Speaker #2: As a result, we're raising our expectation for the wafer equipment market, including advanced packaging, to approximately the low $150 billion range in calendar 2026.

Bren Higgins: As a result, we're raising our expectation for the wafer equipment market, including advanced packaging, to approximately the low $150 billion range in calendar 2026, up from our prior expectation of $140 billion-plus and mid-20% growth above the approximate $120 billion level in calendar 2025. Given the unprecedented visibility from customers, we continue to plan for significant growth in calendar 2027 as broad-based investment across leading-edge logic, foundry, DRAM, both conventional and HBM, NAND, and advanced packaging drives continued capacity expansion. Customer engagement remains intense, with numerous new fab projects and greenfield facilities actively underway. Against this backdrop, KLA's business momentum and critical role in leading-edge process control positions us to deliver accelerating growth in the H2 of calendar 2026 and continued strong growth in 2027.

Speaker #2: Up from our prior expectation of $140 billion-plus, and mid-20% growth above the approximately $120 billion level in calendar 2025. Given the unprecedented visibility from customers, we continue to plan for significant growth in calendar 2027, as broad-based investment across leading-edge logic, foundry, DRAM—both conventional and HBM—NAND, and advanced packaging drives continued capacity expansion.

Bren Higgins: Given the unprecedented visibility from customers, we continue to plan for significant growth in calendar 2027 as broad-based investment across leading-edge logic, foundry, DRAM, both conventional and HBM, NAND, and advanced packaging drives continued capacity expansion.

Speaker #2: Customer engagement remains intense, with numerous new fab projects and greenfield facilities actively underway. Against this backdrop, KLA's business momentum and critical role in leading-edge process control position us to deliver accelerating growth in the second half of calendar 2026, and continued strong growth in 2027.

Bren Higgins: Customer engagement remains intense, with numerous new fab projects and greenfield facilities actively underway. Against this backdrop, KLA's business momentum and critical role in leading-edge process control positions us to deliver accelerating growth in the H2 of calendar 2026 and continued strong growth in 2027.

Speaker #2: High-performance computing HBM, increasing EUV adoption in DRAM, and recently adopted advanced packaging technologies such as hybrid bonding are driving higher process control intensity across the semiconductor ecosystem.

Bren Higgins: High-performance computing, HBM, increasing EUV adoption and DRAM, and recently adopted advanced packaging technologies such as hybrid bonding are driving higher process control intensity across the semiconductor ecosystem. Our expectations of revenue growth acceleration in H2 2026 are materializing as more capacity comes online in our long lead time supply chain areas. We anticipate this resulting in H2 calendar 2026 growth for KLA over H1 to be approximately 20% and positioning the company for continued sequential growth into calendar 2027. KLA's Q3 guidance is for revenue of $4 billion ± $200 million. Foundry logic revenue from semiconductor customers is forecasted to increase to approximately 73%, and memory is expected to be approximately 27% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM is expected to account for approximately 90%, with NAND representing the remaining 10%.

Speaker #2: Our expectations of revenue growth acceleration in the second half of 2026 are materializing, as more capacity comes online and in our long lead time supply chain areas.

Speaker #2: We anticipate this resulting in second-half calendar 2026 growth for KLA over the first half to be approximately 20%, positioning the company for continued sequential growth into calendar 2027.

Bren Higgins: We anticipate this resulting in H2 calendar 2026 growth for KLA over H1 to be approximately 20% and positioning the company for continued sequential growth into calendar 2027. KLA's Q3 guidance is for revenue of $4 billion ± $200 million.

Speaker #2: KLA's September quarter guidance is for revenue of $4 billion, plus or minus 200 million. Foundry logic revenue from semiconductor customers is forecasted to increase to approximately 73%, and memory is expected to be approximately 27% of semiconductor process control systems revenue to semiconductor customers.

Bren Higgins: Foundry logic revenue from semiconductor customers is forecasted to increase to approximately 73%, and memory is expected to be approximately 27% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM is expected to account for approximately 90%, with NAND representing the remaining 10%.

Speaker #2: Within memory, DRAM is expected to account for approximately 90%, with NAND representing the remaining 10%. As a reminder, these business mix approximations pertain solely to our semiconductor customers and do not fully reflect our total semiconductor process control systems revenue.

Bren Higgins: As a reminder, these business mix approximations pertain solely to our semiconductor customers and do not fully reflect our total semiconductor process control systems revenue. Gross margin for Q3 is forecasted to be 62.5% ± 1 percentage point. While guidance is roughly flat sequentially with results, it is up 75 basis points from gross margin guidance last quarter, benefiting from operating leverage on revenue growth. Operating expenses are forecasted to be approximately $690 million in Q3. We will continue to prioritize next-generation product development and company infrastructure investments to support expected revenue growth over the next several years. We anticipate these expenses to grow by roughly $15 to $20 million sequentially over the next several quarters. Our business model is designed to deliver 40% to 50% incremental operating margin leverage on revenue growth over the long run.

Speaker #2: Gross margin for the September quarter is forecasted to be 62.5%, plus or minus 1 percentage point. While guidance is roughly flat sequentially with results, it is up 75 basis points from gross margin guidance last quarter, benefiting from operating leverage on revenue growth.

Speaker #2: Operating expenses are forecasted to be approximately 690 million in the September quarter. We will continue to prioritize next-generation product development, and company infrastructure investments to support expected revenue growth over the next several years.

Bren Higgins: Operating expenses are forecasted to be approximately $690 million in Q3. We will continue to prioritize next-generation product development and company infrastructure investments to support expected revenue growth over the next several years.

Speaker #2: And we anticipate these expenses to grow by roughly $15 million to $20 million sequentially over the next several quarters. Our business model is designed to deliver 40% to 50% incremental operating margin leverage on revenue growth over the long run.

Bren Higgins: We anticipate these expenses to grow by roughly $15 to $20 million sequentially over the next several quarters. Our business model is designed to deliver 40% to 50% incremental operating margin leverage on revenue growth over the long run.

Speaker #2: Other model assumptions include other income and expense net of approximately 25 million dollar expense for the September quarter, and we expect it to remain at approximately this quarterly level for the calendar year.

Bren Higgins: Other model assumptions include other income and expense net of approximately $25 million expense for Q3. We expect it to remain at approximately this quarterly level for the calendar year. Our planning tax rate is 14.5%, and our tax rate will vary quarter to quarter due to discrete items. For Q3, non-GAAP diluted EPS is expected to be $1.16 ± $0.10. GAAP diluted EPS is expected to be $1.14 ± $0.10. EPS guidance is based on a fully diluted share count of approximately 1.312 billion shares. In conclusion, KLA enters H2 calendar 2026 with strengthening momentum, expanding visibility, and a broader set of growth drivers across the semiconductor ecosystem.

Speaker #2: Our planning tax rate is 14.5%, and our tax rate will vary quarter to quarter due to discrete items. For the September quarter, non-GAAP diluted EPS is expected to be $1.16, plus or minus $0.10, and GAAP diluted EPS is expected to be $1.14, plus or minus $0.10.

Bren Higgins: For Q3, non-GAAP diluted EPS is expected to be $1.16 ± $0.10. GAAP diluted EPS is expected to be $1.14 ± $0.10. EPS guidance is based on a fully diluted share count of approximately 1.312 billion shares. In conclusion, KLA enters H2 calendar 2026 with strengthening momentum, expanding visibility, and a broader set of growth drivers across the semiconductor ecosystem.

Speaker #2: EPS guidance is based on a fully diluted share count of approximately 1.312 billion shares. In conclusion, KLA enters the second half of calendar 2026 with strengthening momentum, expanding visibility, and a broader set of growth drivers across the semiconductor ecosystem.

Speaker #2: The acceleration of AI infrastructure investment, the rising complexity of leading-edge logic and memory devices, the rapid adoption of HBM, and the increasing importance of advanced packaging are all raising the strategic value of process control.

Bren Higgins: The acceleration of AI infrastructure investment, the rising complexity of leading-edge logic and memory devices, the rapid adoption of HBM, and the increasing importance of advanced packaging are all raising the strategic value of process control. These trends reinforce KLA's critical role in helping customers accelerate yield learning, improve productivity, and ramp increasingly complex technologies into high-volume manufacturing. Our Q2 results demonstrate the strength of KLA's market position, operating model execution, and drive continued confidence in our performance moving forward. Looking ahead, customer engagement and demand signals continue to strengthen as we are adding capacity to support expected demand. Growth is accelerating in H2 calendar 2026, and we are well-positioned to execute against the expected demand environment across all segments over the remainder of calendar 2026 and into calendar 2027.

Speaker #2: These trends reinforce KLA's critical role in helping customers accelerate yield learning, improve productivity, and ramp increasingly complex technologies into high-volume manufacturing. Our June quarter results demonstrate the strength of KLA's market position, operating model execution, and drive continued confidence in our performance moving forward.

Bren Higgins: Our Q2 results demonstrate the strength of KLA's market position, operating model execution, and drive continued confidence in our performance moving forward. Looking ahead, customer engagement and demand signals continue to strengthen as we are adding capacity to support expected demand.

Speaker #2: Looking ahead, customer engagement and demand signals continue to strengthen, as we are adding capacity to support expected demand. Growth is accelerating in the second half of calendar 2026, and we are well positioned to execute against the expected demand environment across all segments over the remainder of calendar 2026 and into calendar 2027.

Bren Higgins: Growth is accelerating in H2 calendar 2026, and we are well-positioned to execute against the expected demand environment across all segments over the remainder of calendar 2026 and into calendar 2027.

Speaker #2: As AI-driven semiconductor complexity increases, KLA’s differentiated portfolio, compounding R&D investments, growing installed base, and disciplined execution position us to capture a larger market opportunity.

Bren Higgins: As AI-driven semiconductor complexity increases, KLA's differentiated portfolio, compounding R&D investments, growing installed base, and disciplined execution positions us to capture a larger market opportunity. As we progress toward our 2030 target model, we remain focused on supporting our customers, investing in innovation, scaling our global capabilities, and executing our proven capital allocation strategy. We believe KLA is well-positioned to enable the next era of growth and to create durable shareholder value through customer collaboration, technology leadership, operational excellence, and consistent free cash flow generation. That concludes our prepared remarks. Kevin, please begin the Q&A.

Speaker #2: As we progress toward their 2030 target model, we remain focused on supporting our customers, investing in innovation, scaling our global capabilities, and executing our proven capital allocation strategy.

Speaker #2: We believe KLA is well positioned to enable the next era of growth and to create durable shareholder value through customer collaboration, technology leadership, operational excellence, and consistent free cash flow generation.

Bren Higgins: We believe KLA is well-positioned to enable the next era of growth and to create durable shareholder value through customer collaboration, technology leadership, operational excellence, and consistent free cash flow generation. That concludes our prepared remarks. Kevin, please begin the Q&A.

Speaker #2: That concludes our prepared remarks. Kevin, please begin the Q&A.

Speaker #3: Great. Thank you very much, Bren. Angela, can you please provide the instructions and start the Q&A session?

Kevin Kessel: Great. Thank you very much, Bren. Angela, can you please provide the instructions and start the Q&A session?

Speaker #1: Certainly. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2.

Operator: Certainly. At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two. We remind you to please unmute your line when introduced, and if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question today comes from C.J. Muse with Cantor Fitzgerald. Your line is now open.

Speaker #1: We remind you to please unmute your line when introduced and, if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up.

Speaker #1: Our first question today comes from C.J. News with Cantor Fitzgerald. Your line is now open.

Speaker #4: Good afternoon. Thanks for taking the question. I guess my first question is on gross margins. I’m hoping to hear how you’re thinking about the additional supply you’re bringing on and any impact there.

C.J. Muse: Good afternoon. Thanks for taking the question. I guess first question on gross margins. Hoping to kind of hear how you're thinking about the additional supply you're bringing on, any impact there, and as you think about a greater mix shift to tools over other, coupled with, I imagine, at some point, you'll be able to pass on the inflation related to memory and other components. How do you see kind of the trajectory for your gross margins into 2027 and 2028?

Speaker #4: And as you think about a greater makeshift to tools over other, coupled with, I imagine, at some point you'll be able to pass on the inflation related to memory and other components.

Speaker #4: How do you see the trajectory for your gross margins into 2027 and 2028?

Speaker #2: Yes, CJ. This is Bren. So, on gross margin, we're certainly starting to see some benefit from leverage in the overall model. We're still dealing with some headwinds as related to memory pricing.

Bren Higgins: C.J., this is Bren. On gross margin, we're certainly starting to see some benefit from leverage in the overall model. We're still dealing with some headwinds as related to memory pricing. We've been able to secure supply, but as we've seen demand strengthen, we've been having to procure new memory at higher prices. Over the last couple of quarters or so, we thought the impact was somewhere around 100 basis points. It's probably a little bit more than that, and I think that likely continues as we move forward through 2027. We talked about 2026 overall gross margins likely being in the 62% ±. Clearly, if you look at the guidance we provided and expectations for next quarter, we're going to be above that. We feel pretty good from a trajectory point of view.

Speaker #2: We've been able to secure supply, but as we've seen demand strengthen, we've had to procure new memory at higher prices. And so, over the last couple of quarters or so, we thought the impact was somewhere around 100 basis points.

Bren Higgins: Over the last couple of quarters or so, we thought the impact was somewhere around 100 basis points. It's probably a little bit more than that, and I think that likely continues as we move forward through 2027. We talked about 2026 overall gross margins likely being in the 62% ±. Clearly, if you look at the guidance we provided and expectations for next quarter, we're going to be above that. We feel pretty good from a trajectory point of view.

Speaker #2: It's probably a little bit more than that, and I think that likely continues as we move forward through 2027. We talked about 2026 overall gross margins likely being in the 62% plus or minus range.

Speaker #2: Clearly, if you look at the guidance we provided and expectations for next quarter, we're going to be above that. So, we feel pretty good from a trajectory point of view.

Speaker #2: From a product point of view, as we talked about, as we introduce new products, it gives us an opportunity to make some changes to our cost structures.

Bren Higgins: From a product point of view, we are, as we talked about, as we introduce new products, it gives us an opportunity to make some changes to our cost structures. We deliver new capability to customers, both to reflect the new cost structure, but also pricing. We think that that will start to bleed through. I would expect us to move consistent with our 60% to 65% general incremental operate or incremental gross margin models as we move through 2027, given the expectation for sequential growth for the year. I think we're pretty well-positioned. We're excited about some of the leverage opportunities. New products will come out, allow us to deal with some of these cost pressures that are structural in terms of the impact, and still deliver new capability to customers.

Speaker #2: We deliver new capability to customers, both to reflect the new cost structure and also pricing. So we think that will start to bleed through.

Speaker #2: So, I would expect us to move consistent with our 60% to 65% general incremental operating or incremental gross margin model as we move through 2027, given the expectation for sequential growth through the year.

Bren Higgins: I would expect us to move consistent with our 60% to 65% general incremental operate or incremental gross margin models as we move through 2027, given the expectation for sequential growth for the year. I think we're pretty well-positioned. We're excited about some of the leverage opportunities. New products will come out, allow us to deal with some of these cost pressures that are structural in terms of the impact, and still deliver new capability to customers.

Speaker #2: So I think we're pretty well positioned. We're excited about some of the leverage opportunities. New products will come out, which will allow us to deal with some of these cost pressures that are structural in terms of the impact.

Speaker #2: And still deliver new capability to customers.

Speaker #4: Very helpful. I guess as a follow-up, it looks like services on track to grow about 20% per semis. And just curious, how to think about 2027, are there new enough products coming off warranty and/or kind of new product and/or kind of upgrades where you can sustain kind of double-digit growth?

C.J. Muse: Very helpful. I guess as a follow-up, it looks like service is on track to grow about 20% for semis, and just curious how to think about 2027. Are there enough products coming off warranty and/or kind of new product in or kind of upgrades where you can sustain kind of double-digit growth? Would love to hear kind of your thoughts around the drivers there.

Speaker #4: We'd love to hear your thoughts around the drivers there.

Speaker #2: Well, as we talked about at Investor Day, we have a new long-term target model for service growth of 13 to 15 percent. This year, we're right now at the bottom of that range.

Bren Higgins: Well, as we talked about at Investor Day, we have a new long-term target model for service growth of 13% to 15%. This year, we're right now at the bottom of that range. I would expect that to accelerate given the higher shipment levels that we're experiencing this year and into next year. I would expect we'll be operating in the range, but towards the higher end of the range as we move into next year. As you know, our service business has some predictability to it in terms of its contract stream. 80% of the revenue is contract-based. It provides a nice anchor for the company in terms of visibility moving forward. Certainly, our customers in this environment are running their tools at very high utilization. The results matter a lot given the value of the die we're inspecting.

Speaker #2: I would expect that to accelerate, given the higher shipment levels that we're experiencing this year and into next year. So, I would expect we'll operate in the range, but towards the higher end of the range, as we move into next year.

Speaker #2: As you know, our service business has some predictability to it in terms of its contract stream. Eighty percent of the revenue is contract-based, so it provides a nice anchor for the company in terms of visibility moving forward.

Bren Higgins: As you know, our service business has some predictability to it in terms of its contract stream. 80% of the revenue is contract-based. It provides a nice anchor for the company in terms of visibility moving forward. Certainly, our customers in this environment are running their tools at very high utilization. The results matter a lot given the value of the die we're inspecting.

Speaker #2: And certainly, our customers in this environment are running their tools at very high utilization. The results matter a lot, given the value of the die we're inspecting.

Speaker #2: And so, as we can execute our service and drive higher uptime, we can usually capture and monetize some of the value of that.

Bren Higgins: As we can execute our service and drive higher uptime, we can usually capture and monetize some of the value of that.

Speaker #4: Thank you.

C.J. Muse: Thank you.

Speaker #1: Thank you. Our next question comes from Harlan Sur with JPMorgan. Your line is now open.

Operator: Thank you. Our next question comes from Harlan Sur with JPMorgan. Your line is now open.

Speaker #4: Hey, good afternoon. Thanks for taking my question. Yeah, the team has raised their WSP outlook—I think it's four times this year, including today—to now sort of that low $150 billion range, so up kind of mid to high 20% range.

Kevin Kessel: Good afternoon, and thanks for taking my question. The team has raised their WFE outlook, I think it is four times this year, including today, to now sort of that low $150 billion range, so up kind of mid- to high-20% range. I would think that this implies your overall business growing sort of mid-20% range, and I assume that this implies that your process control business grows closer to 30% versus your prior view of greater than 20%. How should we think about the growth profile? You just talked about services. How should we think about the growth profile of your EPC business this year? And you called out significant growth for next year, but do you still see WFE spending growth next year greater than the WFE growth this year?

Harlan Sur: Good afternoon, and thanks for taking my question. The team has raised their WFE outlook, I think it is four times this year, including today, to now sort of that low $150 billion range, so up kind of mid- to high-20% range. I would think that this implies your overall business growing sort of mid-20% range, and I assume that this implies that your process control business grows closer to 30% versus your prior view of greater than 20%.

Speaker #4: We think that this implies your overall business is growing in the mid-20% range. And I assume that this implies your profit control business grows closer to 30% versus your prior view of greater than 20%.

Speaker #4: How should we think about the growth profile? And you just talked about services. How should we think about the growth profile of your EPC business this year?

Harlan Sur: How should we think about the growth profile? You just talked about services. How should we think about the growth profile of your EPC business this year? And you called out significant growth for next year, but do you still see WFE spending growth next year greater than the WFE growth this year?

Speaker #4: And you called out significant growth for next year, but do you still see WSP spending growth next year greater than the WSP growth this year?

Speaker #2: Harlan, this is Bren. I'll start. There's a lot there. I would say, first, on 2026, certainly we've seen some strengthening from our customers as we've moved through the year.

Bren Higgins: Harlan, this is Bren. I'll start. There's a lot there. I would say first on 2026, certainly we've seen some strengthening from our customers as we've moved through the year. Schedules are holding in terms of some of the new factories that are coming online. If you go back to the beginning of the year and you're looking at Q4 opportunities, you are hedging a little bit as it relates to factory timing, and so on. As a result of that, packaging has also inflected and accelerated, and that tends to be a shorter lead time business. All that contributed to the revised outlook for this year.

Speaker #2: Schedules are holding in terms of some of the new factories that are coming online. If you go back to the beginning of the year and you're looking at Q4 opportunities, you are hedging a little bit as it relates to factory timing and so on.

Bren Higgins: If you go back to the beginning of the year and you're looking at Q4 opportunities, you are hedging a little bit as it relates to factory timing, and so on. As a result of that, packaging has also inflected and accelerated, and that tends to be a shorter lead time business. All that contributed to the revised outlook for this year.

Speaker #2: So, as a result of that, packaging is also inflected and accelerated, and that tends to be a shorter lead-time business. So all that's contributed to the revised outlook for this year.

Speaker #2: Given how quickly the industry turned and started to ramp, we did, as we talked about in the past, deal with some supply chain shortages as it relates to some of our longer lead-time materials and how that's impacted the first half.

Bren Higgins: Given how quickly the industry turned and started to ramp, we did, as we talked about in the past, deal with some supply chain shortages as it relates to some of our longer lead time materials and how that's impacted the H1. Certainly, in the H2, we're seeing that supply come on, and we're seeing in the H2 acceleration, as we talked about, 20% over the H1. I think we're pretty well positioned to support growth expectations into next year. We talked about a higher growth rate at Investor Day, of course, as we've gone forward, we've seen the 2026 number move up. I would say our view of 2027, there's a consensus view out there, I would say, that's somewhere in and around the $190 billion range. There's some upside or more bullish views of that.

Speaker #2: Certainly, in the second half, we're seeing that supply come on, and we're seeing, in the second half, acceleration as we talked about—20% over the first half.

Speaker #2: And I think we're pretty well positioned to support growth expectations into next year. We talked about a higher growth rate at Investor Day, and of course, as we've gone forward, we've seen the 2026 number move up.

Bren Higgins: I think we're pretty well positioned to support growth expectations into next year. We talked about a higher growth rate at Investor Day, of course, as we've gone forward, we've seen the 2026 number move up. I would say our view of 2027, there's a consensus view out there, I would say, that's somewhere in and around the $190 billion range. There's some upside or more bullish views of that.

Speaker #2: There, I would say our view of 2027—there's a consensus view out there. I would say that's somewhere in and around the $190 billion range.

Speaker #2: There are some upside or more bullish views of that. There are not too many bearish views at different levels. As we look at it, we think that from a bottoms-up point of view, assuming peer companies can deliver to those levels, we feel pretty good about the companies' ability to execute and deliver on our piece of that.

Bren Higgins: There's not too many bearish views of different levels. As we look at it, we think that from a bottoms-up point of view, we think that assuming that peer companies can deliver those levels, we feel pretty good about the company's ability to execute and deliver on our piece of that. Certainly, if you're in our position, given our lead times, you need to think about the more bullish scenarios in terms of ensuring we have the capacity to support that. We are thinking about it that way. I would say that more or less you're in and around $190 billion or so translates into a mid-20 type growth rate, which is similar to the growth rate in 2026.

Speaker #2: Certainly, if you're in our position, given our lead times, you need to think about the more bullish scenarios in terms of ensuring we have the capacity to support that.

Bren Higgins: Certainly, if you're in our position, given our lead times, you need to think about the more bullish scenarios in terms of ensuring we have the capacity to support that. We are thinking about it that way. I would say that more or less you're in and around $190 billion or so translates into a mid-20 type growth rate, which is similar to the growth rate in 2026.

Speaker #2: So, we are thinking about it that way. I would say that more or less, you're in and around $190 billion or so, which translates into a mid-20% type growth rate, similar to the growth rate in 2026.

Speaker #2: So I think we're more or less in that ballpark, and we'll see as we get closer. Maybe things strengthen, and we're driving the company to ensure that we can supply and support the more bullish views that are out there.

Bren Higgins: I think we're more or less in that ballpark. We'll see as we get closer, maybe things strengthen. We're driving the company to ensure that we can supply and support the more bullish views that are out there.

Speaker #4: And I appreciate that. And Gina has previously talked about a broadening in spending, especially in the foundry and logic space. But in just over the past 90 days, we've seen, for example, Intel announce that they're pulling in their 14A production by a year.

Harlan Sur: Yeah, no, I appreciate that. Jim has previously talked about a broadening in spending, especially in the foundry and logic space. In just over the past 90 days, we've seen, for example, Intel announce that they're pulling in their 14A production by a year, and your process control share at Intel continues to go up. Samsung just announced foundry engagements with new customers like Broadcom, for example, for 2 nanometer and 3 nanometer, you've got Rapidus and new Terafab initiatives. How much of the improvements that you've seen in your calendar 2026 and calendar 2027 outlook is reflective of these broadening sort of dynamics within foundry and logic?

Speaker #4: And your process control share at Intel continues to go up. Samsung just announced foundry engagements with new customers, like Broadcom, for example, for 2-nanometer and 3-nanometer.

Harlan Sur: Samsung just announced foundry engagements with new customers like Broadcom, for example, for 2 nanometer and 3 nanometer, you've got Rapidus and new Terafab initiatives. How much of the improvements that you've seen in your calendar 2026 and calendar 2027 outlook is reflective of these broadening sort of dynamics within foundry and logic?

Speaker #4: And then you've got Rapidus and the new Terrafab in this year, right? How much of the improvements that you've seen in your calendar '26 and calendar '27 outlook is reflective of these broadening sort of dynamics within foundry and logic?

Speaker #3: Yeah, Harlan, it's Rick. Of course, those are factors that are driving us and also, as Bren mentioned, are the setup for 2027. There's no question.

Bren Higgins: Yeah, Harlan, it's Rick. Of course, those are factors that are driving us, also, as Bren mentioned, are the setup for 2027. There's no question, we said this a while ago, that the world needs more advanced logic, there was a desire by many customers to broaden the other players outside of the leader to supply that. There's been some success in terms of their ability to bring technology online. There's such a big demand out there that this was kind of inevitable that you would see a broadening. That's certainly driving it, and I think it sets up well. I think process control intensity now is understood by the leaders, not just in advanced logic, but also we're seeing it more broadly in memory.

Rick Wallace: Yeah, Harlan, it's Rick. Of course, those are factors that are driving us, also, as Bren mentioned, are the setup for 2027. There's no question, we said this a while ago, that the world needs more advanced logic, there was a desire by many customers to broaden the other players outside of the leader to supply that. There's been some success in terms of their ability to bring technology online.

Speaker #3: And we said this a while ago, that the world needs more advanced logic. And so, there was a desire by many customers to broaden the other players outside of the leader.

Speaker #3: To supply that. And there's been some success in terms of their ability to bring technology online. But there's such a big demand out there that this was kind of inevitable—that you would see a broadening.

Rick Wallace: There's such a big demand out there that this was kind of inevitable that you would see a broadening. That's certainly driving it, and I think it sets up well. I think process control intensity now is understood by the leaders, not just in advanced logic, but also we're seeing it more broadly in memory.

Speaker #3: So that's certainly driving it. And I think it sets up well. I think process control intensity now is understood by the leaders, and not just in advanced logic, but also we're seeing it more broadly in memory.

Speaker #3: So the broadening has really been happening as we hoped it would, and that's part of the reason we feel the setup is so good for next year.

Bren Higgins: The broadening has really been happening as we hoped it would, and is part of the reason we feel the setup is so good for next year.

Rick Wallace: The broadening has really been happening as we hoped it would, and is part of the reason we feel the setup is so good for next year.

Speaker #4: Thanks, Rick. Thanks, Bren.

Harlan Sur: Thanks, Rick. Thanks, Bren.

Speaker #3: Thanks.

Bren Higgins: Thanks.

Speaker #1: Thank you. Our next question comes from Vivek Arya with Bank of America. Your line is now open.

Operator: Thank you. Our next question comes from Vivek Arya with Bank of America. Your line is now open.

Speaker #4: Thanks for taking my question. For my first one, I'm curious to hear your views on competition in China. Recently, there has been more noise about increased domestic competition, particularly in the midterm, than in process control.

Vivek Arya: Thanks for taking my question. For my first one, I'm curious to hear your views on competition in China. Recently there has been more noise about more domestic competition, more and more in litho than there in process control. What makes the moat for process control more difficult to replicate versus other tools? Let's say if, theoretically, the Chinese memory companies, right, who spend the bulk of their process control WFE with local suppliers, I imagine. If, let's say, their import ban is lifted, does it mean that more of the WFE share will go to local suppliers? I'm just curious to hear your perspective on how competition from China could evolve as a share of the WFE wallet.

Speaker #4: But what makes the moat for process control more difficult to replicate versus other tools? And let's say if theoretically the Chinese memory companies right, who spend a bulk of their process control WFE with local suppliers, I imagine if let's say their import ban is lifted, does it mean that more of the WFE share will go to local suppliers?

Vivek Arya: Let's say if, theoretically, the Chinese memory companies, right, who spend the bulk of their process control WFE with local suppliers, I imagine. If, let's say, their import ban is lifted, does it mean that more of the WFE share will go to local suppliers? I'm just curious to hear your perspective on how competition from China could evolve as a share of the WFE wallet.

Speaker #4: So, I'm just curious to hear your perspective on how competition from China could evolve as a share of the WFE wallet.

Speaker #3: Yeah, thanks, Vivek. I mean, there have been a lot of players across the world, not just in China, who have tried to enter process control for a number of different reasons.

Bren Higgins: Yeah. Thanks, Vivek. There have been a lot of players across the world, not just in China, who have tried to enter process control for a number of different reasons. I think the unique advantage that KLA has in terms of developing our products is the integration not just of the technologies for process control, but also the engagement with customers, and especially as it pertains to the leading edge. A lot of learning that happens at the leading edge then helps define the interactions that we have and also the development that we have across our portfolio. Process control is tricky to get into because it's a very high mix, low volume market. Unlike litho, frankly, is much higher kind of similar tool, higher volume. Process control, there's a lot of nuance.

Rick Wallace: Yeah. Thanks, Vivek. There have been a lot of players across the world, not just in China, who have tried to enter process control for a number of different reasons. I think the unique advantage that KLA has in terms of developing our products is the integration not just of the technologies for process control, but also the engagement with customers, and especially as it pertains to the leading edge.

Speaker #3: I think the unique advantage that KLA has, in terms of developing our products, is the integration not just of the technologies for process control, but also the engagement with customers.

Speaker #3: And especially as it pertains to the leading edge. A lot of learning that happens at the leading edge then helps define the interactions that we have, and also the development that we have across our portfolio.

Rick Wallace: A lot of learning that happens at the leading edge then helps define the interactions that we have and also the development that we have across our portfolio. Process control is tricky to get into because it's a very high mix, low volume market. Unlike litho, frankly, is much higher kind of similar tool, higher volume. Process control, there's a lot of nuance.

Speaker #3: So process control is tricky to get into because it's a very high-mix, low-volume market. So unlike Litho, frankly, which is much higher—kind of similar tool, higher volume—in process control there's a lot of nuance.

Speaker #3: There's also a lot of work with algorithms and development, in terms of being able to help customers determine what's valuable. Add to that the 1,600–1,700 applications engineers that KLA has worldwide.

Bren Higgins: There's also a lot of work with algorithms and development in terms of being able to help customers determine what's valuable. Add to that the 1,600, 1,700 applications engineers that KLA has worldwide, and it's a pretty good competitive moat that we've established over time. We have seen people come at the market, but our job is to continue to innovate, to provide capability, and today we continue to see whenever there's fair competition and we're allowed to compete, we do quite well.

Rick Wallace: There's also a lot of work with algorithms and development in terms of being able to help customers determine what's valuable. Add to that the 1,600, 1,700 applications engineers that KLA has worldwide, and it's a pretty good competitive moat that we've established over time. We have seen people come at the market, but our job is to continue to innovate, to provide capability, and today we continue to see whenever there's fair competition and we're allowed to compete, we do quite well.

Speaker #3: And it's a pretty good competitive moat that we've established over time. So, we have seen people come at the market, but our job is to continue to innovate, to provide capability, and today we continue to see, whenever there's fair competition and we're allowed to compete, we do quite well.

Speaker #4: All right. Thank you, Rick. And for my follow-up, I think, Bren, you mentioned the possibility of industry expectation of 2027 WFE in the, whatever, $190-plus range.

Vivek Arya: Thank you, Rick. For my follow-up, I think when you mentioned the possibility of industry expectation of 2027 WFE in the whatever $190 billion plus range, that's close to 30% growth. I know it's very early, but let's say if I were to ask you to kind of rank order foundry logic versus DRAM versus NAND, how would you rank order what would be the areas of growth above or below that range? What would that suggest to us about KLA's ability to take share next year? Thank you.

Speaker #4: So that's close to 30% growth. I know it's very early, but let's say if I were to ask you to kind of rank order foundry/logic versus DRAM versus NAND, how would you kind of rank order them?

Speaker #4: What would be the areas of growth above or below that range? And what would that suggest to us about KLA’s ability to take share next year?

Speaker #4: Thank you.

Speaker #2: Well, as Rick talked about earlier, we're pretty excited about the broadening of investment that's happening at the leading edge in logic. And so, that will drive, after a number of years of pretty high levels of efficiency in logic investment at the leading edge, that you have multiple players.

Bren Higgins: Well, as Rick talked about earlier, we're pretty excited about the broadening of investment that's happening at the leading edge in logic. That will drive, after a number of years of pretty high levels of efficiency in logic investment at the leading edge, that you have multiple players. I think as this year has moved on and gotten more comfort around the sustainability of additional investment beyond 2026 as it moves into 2027. We're really encouraged by that. We've talked a lot about high-bandwidth memory and how high-bandwidth memory from an intensity point of view is a unique animal for KLA, given some of the dynamics around it, both in terms of more customization in the die, the base die, the integration of each DRAM, and then the ultimate value. Performance specs also a factor.

Speaker #2: And I think, as this year has moved on, we've gotten more comfort around the sustainability of additional investment beyond '26 as it moves into 2027.

Bren Higgins: I think as this year has moved on and gotten more comfort around the sustainability of additional investment beyond 2026 as it moves into 2027. We're really encouraged by that.

Speaker #2: So we're really encouraged by that. We've talked a lot about high bandwidth memory, and how high bandwidth memory—from an intensity point of view—is a unique animal for KLA given some of the dynamics around it, both in terms of more customization in the die, the base die, and the integration of each DRAM.

Bren Higgins: We've talked a lot about high-bandwidth memory and how high-bandwidth memory from an intensity point of view is a unique animal for KLA, given some of the dynamics around it, both in terms of more customization in the die, the base die, the integration of each DRAM, and then the ultimate value. Performance specs also a factor.

Speaker #2: And then, the ultimate value—performance specs—are also a factor. So, for all those reasons, we're seeing, even across some of our products, intensity levels that are rivaling what we see in advanced logic.

Bren Higgins: For all those reasons, we're seeing even across some of our products, where we're seeing intensity levels that are rivaling what we see in advanced logic. We're encouraged by what's happening there. Obviously, there's a lot of investment that's happening in conventional DRAM as well, which we've seen intensity improvements, but conventional DRAM isn't the same as high-bandwidth memory DRAM in terms of its process control intensity. That's a little bit different as you size things up. One of the things that we also see into next year is a number of new fabs. You have a lot of greenfield activity. Not just tech upgrades that's adding incremental bits in terms of supply, but also new tools.

Speaker #2: So we're encouraged by what's happening there. Obviously, there's a lot of investment happening in conventional DRAM as well, where we've seen intensity improvements. But conventional DRAM isn't the same as high-bandwidth memory DRAM in terms of its process control intensity.

Speaker #2: And so that's a little bit different as you size things up. One of the things that we also see into next year is a number of new fabs.

Bren Higgins: That's a little bit different as you size things up. One of the things that we also see into next year is a number of new fabs. You have a lot of greenfield activity. Not just tech upgrades that's adding incremental bits in terms of supply, but also new tools.

Speaker #2: So you have a lot of greenfield activity, so not just tech upgrades that add incremental bits in terms of supply, but also new tools.

Speaker #2: So we do think the construct is pretty good at how it sets up for '27, both in terms of the broadening of investment and logic.

Bren Higgins: We think the construct is pretty good, at how it sets up for 2027, both in terms of the broadening of investment in logic, high-bandwidth memory continuing to grow, greenfield fabs, advanced packaging, and we haven't really modeled in any contribution really from some of our legacy customers. I think that we're starting to see that they also are playing a role in high-performance compute. I think that potentially could be an upside factor, although not a big one for us. We think the construct is pretty strong. Our supply comes online, that should enable us to meet some of these expectations. As I said, we're building and sort of sizing the company to be able to serve the more bullish scenarios that are out there.

Speaker #2: High bandwidth memory continues to grow, greenfield fabs, advanced packaging, and we haven't really modeled in any contribution, really, from some of our legacy customers.

Speaker #2: And I think that we're starting to see that they also are playing a role in high-performance compute. So I think that potentially could be an upside factor, although not a big one for us.

Bren Higgins: I think that potentially could be an upside factor, although not a big one for us. We think the construct is pretty strong. Our supply comes online, that should enable us to meet some of these expectations. As I said, we're building and sort of sizing the company to be able to serve the more bullish scenarios that are out there.

Speaker #2: So, we think the construct is pretty strong. Our supply comes online—that should enable us to meet some of these expectations. And as I said, we're building and sizing the company to be able to serve the more bullish scenarios that are out there.

Speaker #4: Thank you.

Vivek Arya: Thank you.

Speaker #1: Thank you. Our next question comes from Krish Sankar with TD Cowen. Your line is now open.

Operator: Thank you. Our next question comes from Krish Sankar with TD Cowen. Your line is now open.

Speaker #4: Yeah, hi. Thanks for taking my question. Rick or Bren, one of the large foundry customers last week raised their capex. Part of it was due to equipment pricing going up.

Krish Sankar: Yeah. Hi, thanks for taking my question. Rick or Bren, one of the large foundry customers last week raised their CapEx. Part of it was due to equipment pricing going up. To the extent you can answer, in this environment with strong demand and capacity constraints, is KLA raising prices either due to value pricing or increasing supply chain costs, especially on existing tools, if so, when are those prices increases going to affect, and how to think about the impact on gross margins? I have a follow-up.

Krish Sankar: Yeah. Hi, thanks for taking my question. Rick or Bren, one of the large foundry customers last week raised their CapEx. Part of it was due to equipment pricing going up.

Speaker #4: To the extent you can answer, in this environment with strong demand and capacity constraints, is KLA raising prices—either due to value pricing or increasing supply chain costs—especially on existing tools?

Krish Sankar: To the extent you can answer, in this environment with strong demand and capacity constraints, is KLA raising prices either due to value pricing or increasing supply chain costs, especially on existing tools, if so, when are those prices increases going to affect, and how to think about the impact on gross margins? I have a follow-up.

Speaker #4: And if so, when are those price increases going to take effect, and how should we think about the impact on gross margins? I'm going to add a follow-up.

Speaker #3: I think that, on the question of pricing, a lot of factors go into pricing. One is the volume, the mix of products, and the other services that are available when we deal with customers.

Bren Higgins: I think that the question on pricing, a lot of factors go into pricing. One is the volume, the mix of products and the other services that are available when we deal with customers. I think in general, the input prices have gone up. Customers recognize that, we have had different discussions about how KLA will help to capture some of that value so we can continue to make the R&D investments that the industry needs. We've had those discussions. As Bren pointed out, the gross margin performance is largely in line with what we anticipated, we continue to see a path forward. When we bring out new products, that's when new pricing decisions get made.

Rick Wallace: I think that the question on pricing, a lot of factors go into pricing. One is the volume, the mix of products and the other services that are available when we deal with customers. I think in general, the input prices have gone up. Customers recognize that, we have had different discussions about how KLA will help to capture some of that value so we can continue to make the R&D investments that the industry needs.

Speaker #3: But I think in general, input prices have gone up. Customers recognize that, and so we have had conversations—different discussions—about how KLA will help to capture some of that value so we can continue to make the R&D investments that the industry needs.

Speaker #3: So we've had those discussions. As Bren pointed out, the gross margin performance is largely in line with what we anticipated, and we continue to see a path forward.

Rick Wallace: We've had those discussions. As Bren pointed out, the gross margin performance is largely in line with what we anticipated, we continue to see a path forward. When we bring out new products, that's when new pricing decisions get made.

Speaker #3: And when we bring out new products, that's when new pricing decisions get made. But with existing products, it's a little bit more about other ways where we can share in some of the increased value, but recognize some of the increased costs.

Bren Higgins: With existing products, it's a little bit more around other ways to where we can share in some of the increased value, but recognize some of the increased costs. Krish, I'd also say that the memory headwind we're experiencing today likely continues through next year, but I would expect you start to see some normalization on the pricing front that moves from a headwind to a tailwind. We feel pretty good about the pricing model I talked about, and that's inclusive of some of this pressure. A combination of being able to pass along, but also to, I think of just the incremental value of our offerings and some of the things Rick talked about. I think as we move forward, we should be able to scale the business consistent with the incremental gross margin target that I provided in the earlier question.

Rick Wallace: With existing products, it's a little bit more around other ways to where we can share in some of the increased value, but recognize some of the increased costs.

Speaker #2: Krish, I'd also say that the memory headwind we're experiencing today likely continues through next year. But I would expect you start to see some normalization on the pricing front that moves from a headwind to a tailwind.

Bren Higgins: Krish, I'd also say that the memory headwind we're experiencing today likely continues through next year, but I would expect you start to see some normalization on the pricing front that moves from a headwind to a tailwind.

Speaker #2: So we feel pretty good about the pricing model I talked about, and that's inclusive of some of this pressure. So it's a combination of being able to pass that along but also, too, I think just the incremental value of our offerings and some of the things Rick talked about.

Bren Higgins: We feel pretty good about the pricing model I talked about, and that's inclusive of some of this pressure. A combination of being able to pass along, but also to, I think of just the incremental value of our offerings and some of the things Rick talked about. I think as we move forward, we should be able to scale the business consistent with the incremental gross margin target that I provided in the earlier question.

Speaker #2: I think as we move forward, we should be able to scale the business consistent with the incremental gross margin target that I provided in the earlier question.

Speaker #4: Gotcha. Thanks to Rick and Bren. And then a quick follow-up: Based on your guidance of second half over 20%, it looks like you might grow your revenues in the low 20% range this year on a calendar year basis.

Krish Sankar: Gotcha. Thanks, Bren. A quick follow-up. Based on your guidance of H2 over 20%, it looks like you might grow your revenues in the low 20% this year on a calendar year basis. When I try to square that with what your WFE comment is, which is like low $150 billion, it looks like the runway WFE early in the year looks like $130 billion. You might probably exit at $170 billion plus. When I look at your revenues over the quarter, it seems like your revenue as a percentage of WFE is pretty consistent through the year. I'm just wondering why. If process control intensity is increasing, shouldn't your revenue be outpacing WFE? Is this as simple as changing the mix from customer to customer, or capacity constraints at the end that is limiting the upside to revenues? Thank you.

Speaker #4: When I try to square that with what your WFE comment is, which is like low $150 billion, it looks like the runway WFE early in the year looks like $130 billion.

Speaker #4: You might probably exit at $170 billion plus. When I look at your revenue over the quarter, it seems like your revenue as a percentage of WFE is pretty consistent through the year.

Krish Sankar: When I look at your revenues over the quarter, it seems like your revenue as a percentage of WFE is pretty consistent through the year. I'm just wondering why. If process control intensity is increasing, shouldn't your revenue be outpacing WFE? Is this as simple as changing the mix from customer to customer, or capacity constraints at the end that is limiting the upside to revenues? Thank you.

Speaker #4: I'm just wondering, why are process control intensities increasing? Shouldn't your revenue be outpacing WFE? Or is this as simple as cleanroom restrictions, or customer or capacity constraints at the end that are limiting the upside to revenues?

Speaker #4: Thank you.

Speaker #2: What I would say, certainly, is that the first half of '26 was slower from a sequential point of view, given some of the lead time challenges we had and how that translated to the constraints around shipments.

Bren Higgins: Well, I would say certainly the H1 of 2026 was slower from a sequential point of view, given some of the lead time challenges we had and how that translated to the constraints around shipments. I think an important message was that as we start to see that accelerating as we move through here in the H2 of this year, that we feel like we're in a pretty good position to be able to drive sequential growth moving forward and support some of the outlook that we talked about. I think the construct that I talked about is pretty good. If you look at our Semi PC business, and we expect that to grow at least a few points, maybe a little more than that, faster than the overall company as it's being diluted by service growth.

Speaker #2: I think an important message was that as we start to see that accelerating, as we move through here the second half of this year, that we feel like we're in a pretty good position to see to be able to drive sequential growth moving forward and support some of the outlook that we talked about.

Speaker #2: So I think the construct, as I talked about, is pretty good. And if you look at our semi-PC business, I would expect that to grow at least a few— it will grow at least a few points, maybe a little more than that— faster than the overall company, as it's being diluted by service growth.

Bren Higgins: I think the construct that I talked about is pretty good. If you look at our Semi PC business, and we expect that to grow at least a few points, maybe a little more than that, faster than the overall company as it's being diluted by service growth.

Speaker #2: And I think for 2027, it sets up pretty well. Our story at Investor Day was our view that because of the dynamics of high-performance compute, now that translates into a greater percentage of semiconductor revenue over time, that the next four to five years would be as strong as the last four to five years in terms of KLA's overall market relevance.

Bren Higgins: I think for 2027, it sets up pretty well. Our story at Investor Day was our view that because of the dynamics of high performance compute, now that translates into a greater percentage of semiconductor revenue over time, that the next four to five years would be as strong as the last four to five years in terms of KLA's overall market relevance. As we go over the next five years, we expect that we'll continue to execute and drive some of the strategies we talked about, and we'll see that share of market increase that's consistent with that overall view.

Speaker #2: So as we go over the next five years, we expect that we'll continue to execute and drive some of the strategies we talked about.

Bren Higgins: As we go over the next five years, we expect that we'll continue to execute and drive some of the strategies we talked about, and we'll see that share of market increase that's consistent with that overall view.

Speaker #2: And we'll see that share of market increase; that's consistent with that overall view.

Speaker #4: Thanks a lot,

Krish Sankar: Thanks a lot, Brad.

Speaker #1: Thank you. Our next question comes from Blaine Curtis with Jefferies. Your line is now open.

Operator: Thank you. Our next question comes from Blayne Curtis with Jefferies. Your line is now open.

Speaker #5: Hey, guys. Thanks for taking my question. I wanted to ask about—people are throwing out pretty big numbers for what the WP TAM could be in a few years.

Blayne Curtis: Hey, guys. Thanks for taking my question. I wanted to ask about, people are throwing out pretty big numbers for what the WFE TAM could be in a few years. I'm not expecting you to answer that, but I'm just curious from a supply chain perspective, how long would it take to prep for a $300 billion WFE market? Can you just talk about what space you have within your facility and timeline if you had to add any space for your supply chain?

Speaker #5: I'm not expecting you to answer that, but I'm just curious—from a supply chain perspective, how long would it take to prep for a $300 billion wafer processing market?

Speaker #5: And can you just talk about what space you have within your facility, and the timeline if you had to add any space for your supply chain?

Speaker #2: Yeah, it's an interesting question. One of the things that we've spent a lot of time on over the last few months is meeting with some of our critical suppliers and planning, and doing capacity agreements for our needs.

Bren Higgins: Yeah. It's an interesting question, one of the things that we've spent a lot of time on over the last few months is meeting with some of our critical suppliers and planning and doing capacity agreements for our needs, we believe in the 2029 and beyond timeframe. That gives you a sense of how we have to think about planning to drive the capacity requirements for optical components. We're actively engaging in those discussions now and working through the economics of that. We can usually do whatever we need to from our own capacity point of view in terms of our own facilities, and the headcount we need to build our systems.

Speaker #2: We believe in the 2029 and beyond timeframe, and that gives you a sense of how we have to think about planning to drive the capacity requirements for optical components.

Speaker #2: So we're actively engaging in those discussions now and working through the economics of that. We can usually do whatever we need to from our own capacity point of view in terms of our own facilities and the headcount we need to build our systems.

Bren Higgins: We're actively engaging in those discussions now and working through the economics of that. We can usually do whatever we need to from our own capacity point of view in terms of our own facilities, and the headcount we need to build our systems.

Speaker #2: So really, where the gating item is for us, or the thing that we have to manage and think about, is long lead time. Because it can take 12 to 24 months to put new capacity in place for those types of components.

Bren Higgins: Really where the gating item is for us or the thing that we have to manage to think about is lead time, because it can take 12 to 24 months to put new capacity in place for those types of components.

Speaker #4: And to Blaine, because of the nature of the industry, because of the overlap and the knowledge that suppliers have of each other, if you really did have a number like that, we would see the signals, because there are others that have similar kind of lead time.

Richard Wallace: To Blayne, because of the nature of the industry, because of the overlap and the knowledge that suppliers have of each other, if you really did have a number like that, we would see the signals, because there are others that have similar lead time. We would be responsive to that. We wouldn't be the ones not able to support that.

Rick Wallace: To Blayne, because of the nature of the industry, because of the overlap and the knowledge that suppliers have of each other, if you really did have a number like that, we would see the signals, because there are others that have similar lead time. We would be responsive to that. We wouldn't be the ones not able to support that.

Speaker #4: So we would be responsive to that. We wouldn't be the ones not able to support that.

Speaker #5: Thanks. And then, just talking about visibility, I know you don't give RPO anymore. I'm just kind of curious if there's a way you could talk about it directionally as in, is it improving, or maybe you can talk about your outlook visibility as far as that extending.

Blayne Curtis: Thanks. Just talking about visibility, I know you don't give RPO anymore. I'm just curious if there's a way you could talk about it directionally. Is it improving? Maybe you can talk about your outlook visibility. How far is that extending? Is it changing?

Speaker #5: Is it changing?

Speaker #2: Yeah, sure. Some of the view that I talked about earlier is predicated on what's happened with backlog growth, right? And so the order funnel and how that translates.

Bren Higgins: Yeah, sure. Some of the view I talked about earlier is predicated on what's happened with backlog growth, right? The order funnel and how that translates. We're going to issue our 10-Q here as we finish the fiscal year at the end of June, in another week or so. We'd expect that the RPO or backlog would be about $12.5 billion, and we've seen that grow pretty consistently over the last couple of quarters and would expect that given the order funnel, that we'll see that continue to grow. Part of our view of H2 and 2027 is certainly informed by our order outlook and how that translates into backlog. Hopefully that provides the color you need.

Speaker #2: We're going to issue our 10Q here as we finish the fiscal year at the end of June. In another week or so. But we'd expect that the RPO would be or backlog would be about 12 and a half billion.

Bren Higgins: We'd expect that the RPO or backlog would be about $12.5 billion, and we've seen that grow pretty consistently over the last couple of quarters and would expect that given the order funnel, that we'll see that continue to grow. Part of our view of H2 and 2027 is certainly informed by our order outlook and how that translates into backlog. Hopefully that provides the color you need.

Speaker #2: And we've seen that grow pretty consistently over the last couple of quarters. And we'd expect that, given the order funnel, we'll see that continue to grow.

Speaker #2: So, part of our view of the second half and 2027 is certainly informed by our order outlook and how that translates into backlog. Hopefully, that provides the color you need.

Speaker #5: Helpful. Thank you.

Blayne Curtis: Helpful. Thank you.

Speaker #1: Thank you. Our next question comes from Timothy Akure with UBS.

Operator: Thank you. Our next question comes from Timothy Arcuri with UBS.

Speaker #4: Thanks a lot. Bren, so gross margin is being guided flat on up 10% revenue. I know you went through why that is, and you're basically giving us Q4 guidance as well.

Timothy Arcuri: Thanks a lot. Bren, gross margin is being guided flat on up 10% revenue. I know you went through why that is, and you are basically giving us Q4 guidance as well. December quarter guidance, it is up another 10. What is the implied gross margin for December? December is up about the same on a quarterly basis as September. Are we talking about another flat gross margin quarter for December?

Speaker #4: December quarter guidance is up another 10, so what's the implied gross margin for December? December is up about the same on a quarterly basis as September.

Speaker #4: So, are we talking about another flat gross margin quarter for December?

Speaker #2: So, we'll see how it plays out. I mean, mix is the biggest factor in our gross margin quarter to quarter. As we talked about at Investor Day, right, we see that the gross margin is generally going to track 60% to 65%, toward that 63.5% plus or minus 500 basis points view that we articulated.

Bren Higgins: We will see how mix plays out. I mean, mix is the biggest factor in our gross margin quarter-to-quarter. As we talked about it in Investor Day, right, we see that the gross margin is generally going to track 60% to 65% towards that 63.5 ±500 basis point view that we articulated. We will see how it plays out. I would expect gross margins to be in this range, but it could be a little bit higher too. We will just have to see. Like I said, it depends on the product that actually revenues. We have some big integers in some of our product types, and that tends to influence our gross margin. In terms of long-term trajectory, I think it will be consistent with the way I articulated in the earlier question.

Speaker #2: So, we'll see how it plays out. I would expect gross margins to be in this range, but it could be a little bit higher, too.

Speaker #2: So we'll just have to see. Like I said, it depends on the product that actually generates revenue. We have some big integers in some of our product types.

Bren Higgins: We will just have to see. Like I said, it depends on the product that actually revenues. We have some big integers in some of our product types, and that tends to influence our gross margin. In terms of long-term trajectory, I think it will be consistent with the way I articulated in the earlier question.

Speaker #2: And that tends to influence our gross margin. But in terms of the long-term trajectory, I think it'll be consistent with the way I articulated in an earlier question.

Speaker #4: Yeah, I guess that's my follow-up. So, I mean, I guess I'm a little confused as to why you can't raise prices to at least offset memory prices.

Timothy Arcuri: Yeah. I guess as my follow-up, I guess I'm a little confused as to why you can't raise prices to at least offset memory prices. I know that you're coming from a different place than others are. But even ASML is talking about raising prices on EUV. I would think you'd be able to at least offset the compute headwind, and it seems like you're struggling to do that. Is there something unique? Is there something like you don't want to anger customers, or is there some reason why you're not able to at least offset that and maybe even get proactive and move margins even higher than what was in your model?

Speaker #4: I know that you're coming from a different place than others are. But I mean, even ASML is talking about raising prices on EUV, so I would think you'd be able to at least offset the compute headwind.

Speaker #4: And it seems like you're struggling to do that. So, is there something unique? Is it that you don't want to anger customers? Or is there some reason why you're not able to at least offset that and maybe even get proactive and move margins higher than what was in your model?

Timothy Arcuri: Is there something like you don't want to anger customers, or is there some reason why you're not able to at least offset that and maybe even get proactive and move margins even higher than what was in your model?

Speaker #2: Well, as I said earlier, we get price increases as it relates to increases in our cost structure. We deliver new capability to customers that meets their cost of ownership targets.

Bren Higgins: Well, as I said earlier, we get price increases as it relates to increases in our cost structure. We deliver new capability to customers that meets their cost of ownership targets. In that time, we get a chance to assess our costs, relative to the pricing, and make the adjustments we need to make. We'll continue to do that. It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders. I think we're pretty comfortable with our view. Rick talked about how we're talking to customers about some of the value opportunities that exist here. I think as we move forward, you'll continue to see pricing and then ultimately how that translates to gross margin consistent the way that I've talked about.

Speaker #2: And in that time, we get a chance to assess our costs relative to the pricing and make the adjustments we need to make. And so, we'll continue to do that.

Speaker #2: It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders. So I think we're pretty comfortable with our deal.

Speaker #2: Rick talked about how we're talking to customers about some of the value opportunities that exist here. So, I think as we move forward, you'll continue to see pricing, and then ultimately how that translates to gross margin is consistent with the way that I talked about.

Bren Higgins: Rick talked about how we're talking to customers about some of the value opportunities that exist here. I think as we move forward, you'll continue to see pricing and then ultimately how that translates to gross margin consistent the way that I've talked about.

Speaker #4: All right. Thanks.

Timothy Arcuri: All right. Thanks.

Speaker #1: Thank you. Our next question comes from Joe Quattrocchi with Wells Fargo. Your line is now open.

Operator: Thank you. Our next question comes from Joe Quatrochi with Wells Fargo. Your line is now open.

Speaker #4: Yeah, thanks for taking the question. I think last quarter you talked about maybe foundry/logic being in the low 60% of semi-PC systems for '26.

Joe Quatrochi: Yeah. Thanks for taking the question. Last quarter you talked about maybe foundry logic being in the low 60% of semi PC systems for 2026. Just curious, what's the updated thought process there, given the increase in WFE outlook?

Speaker #4: Just curious, what's the updated thought process there given the increase in the WSE outlook?

Speaker #2: I'm sorry. I missed the first part of that, Joe.

Bren Higgins: I'm sorry, I missed the first part of that, Joe.

Speaker #4: Yeah. Just last quarter, I think you talked about Foundry Logic being like low-60% of semi-PC systems for 2026, and maybe memory accelerating in the second half. Just kind of curious, given the guidance that you've provided for the mix in the third quarter, how that looks—has that changed?

Joe Quatrochi: Yeah, just last quarter, I think you talked about foundry logic being low 60% of semi PC systems for 2026, and maybe memory accelerating in H2. Just kind of curious, just given the guidance that you've provided for the mix into Q3, how that looks. Has that changed?

Speaker #2: Yeah, I think as we look at this year, I would say we're still more or less in the same ballpark for semi-PC systems to the semiconductor customers.

Bren Higgins: Yeah, I think as we look at this year, I would say we're still more or less in the same ballpark for semi PC systems to the semiconductor customers doesn't reflect all of our systems business. We've provided guidance here today about the expectations for Q3, but I do expect memory to be a bigger percentage in Q4 and likely to remain there through H1 of the year. We'll see how that plays out. As I said earlier, a lot of it depends on the timing of just revenue recognition, and what we're shipping, I would say that's the way to think about it. It more or less is playing out the way that we thought, and I would say you're probably somewhere close to the 65-ish%, I'll call it kind of low to mid-60s as I look at 2026.

Speaker #2: It doesn't reflect all of our systems business. We provided guidance here today about the expectations for the September quarter, but I do expect memory to be a bigger percentage in the December quarter—and likely to remain there through the first half of the year.

Speaker #2: So we'll have to see how that plays out. As I said earlier, a lot of it depends on the timing of revenue recognition.

Bren Higgins: We'll see how that plays out. As I said earlier, a lot of it depends on the timing of just revenue recognition, and what we're shipping, I would say that's the way to think about it. It more or less is playing out the way that we thought, and I would say you're probably somewhere close to the 65-ish%, I'll call it kind of low to mid-60s as I look at 2026.

Speaker #2: And what we're shipping, but I would say that's the way to think about it. But more or less, it's playing out the way that we thought.

Speaker #2: And I would say you're probably somewhere close to the 65% range. So, I'll call it kind of low to mid-60s as I look at 2026.

Speaker #4: Thanks for that. Just wondering if you could talk about your lead times, and how we should think about the cadence of capacity that's coming online as we move through next year.

Joe Quatrochi: Thank you for that. Just wondering if you could talk about your lead times and how do we think about just the cadence of capacity that's coming online as we move through next year?

Speaker #2: Well, lead times today across the whole company are in about the 12-month range, but on certain products, it can be closer to 18 to 24 months.

Bren Higgins: Well, lead times today across the whole company are in about the 12-month range, but on certain products, it can be closer to 18 to 24 months. All our conversations today with customers are about deliveries really in the second half of 2027. We're starting to move in that direction around some of the larger products in this company. I would say that if you look across the whole company, mathematically, you're about a year, but certain products, which are strong products, can be longer than that.

Speaker #2: All our conversations today with customers are about deliveries really in the second half of '27. We're starting to move in that direction around some of the larger products in the company.

Bren Higgins: We're starting to move in that direction around some of the larger products in this company. I would say that if you look across the whole company, mathematically, you're about a year, but certain products, which are strong products, can be longer than that.

Speaker #2: So I would say that if you look across the whole company, mathematically, you're about a year, with certain products—which are strong products—it can be longer than that.

Joe Quatrochi: Thank you.

Speaker #2: And certainly, some of that is all determined generally by the capacity that comes online, and that as we have capacity and the volumes that ultimately supports, and that just translates into what we can ship in certain quarters. And given the demand from certain customers, how that all maps out.

Bren Higgins: Certainly, some of that is all determined generally by the capacity that comes online, that as we have capacity and the volumes that ultimately support them, that just translates into what we can ship at certain quarters, and given the demand from certain customers, how that all maps out. We do a lot of moving things around and juggling to meet changing customer expectations and also to ensure that we don't lose business because we can't deliver. There's some art to how we manage it, but generally, that's how to think about it.

Speaker #2: We do a lot of moving things around and juggling to meet changing customer expectations, and also to ensure that we don't lose business because we can't deliver.

Bren Higgins: We do a lot of moving things around and juggling to meet changing customer expectations and also to ensure that we don't lose business because we can't deliver. There's some art to how we manage it, but generally, that's how to think about it.

Speaker #2: So there's some art to how we manage it, but generally, that's how to think about it.

Speaker #1: Thank you. We'll go next to Stacy Rasgon with Bernstein Research. Your line is now open.

Operator: Thank you. We'll go next to Stacy Rasgon with Bernstein Research. Your line is now open.

Speaker #5: Hi guys, thanks for taking my questions. For my first one, you talked about sizing your supply for the most bullish scenarios. Can you give us a little more color on what that means?

Stacy Rasgon: Hi, guys. Thanks for taking my questions. My first one, you talked about sizing your supply for the most bullish scenarios. Can you give us a little more color on what that means? If I look at some of your competitors, like AMAT suggested that they were doubling their capacity, for example. Is that how you guys are thinking about it? I realize that for you, it's not just capacity, it's also component supply and that sort of thing. Any more color you can give us on what bullish scenarios actually means in this context relative to what your competitors are doing?

Speaker #5: I mean, if I look at some of your competitors—like AMAT suggested that they were doubling their capacity, for example—is that how you guys are thinking about it?

Stacy Rasgon: Is that how you guys are thinking about it? I realize that for you, it's not just capacity, it's also component supply and that sort of thing. Any more color you can give us on what bullish scenarios actually means in this context relative to what your competitors are doing?

Speaker #5: And I realize that for you, it's not just capacity; it's also component supply and that sort of thing. But is there any more color you can give us on what 'bullish scenarios' actually means in this context, relative to what your competitors are doing?

Speaker #6: No, Stacy, what I think—and maybe it was a little unclear, sorry about that—what I was saying is we would be in a position to support any scenario that the industry could support, simply because we would see it coming and be able to respond.

Timothy Arcuri: No, Stacy, what I think, maybe it was a little unclear, sorry about that. What I was saying is we would be in a position to support any scenario that the industry could support, simply because we would see it coming and be able to respond. What we're doing now in terms of supporting capacity is supporting the outlook, we're having a lot of conversations with customers about their needs, there's a huge premium right now on being able to deliver to support the ramps that are going on around the industry. Bren can talk size of that.

Rick Wallace: No, Stacy, what I think, maybe it was a little unclear, sorry about that. What I was saying is we would be in a position to support any scenario that the industry could support, simply because we would see it coming and be able to respond.

Speaker #6: What we're doing now in terms of supporting capacity is supporting the outlook, and we're having a lot of conversations with customers about their needs.

Rick Wallace: What we're doing now in terms of supporting capacity is supporting the outlook, we're having a lot of conversations with customers about their needs, there's a huge premium right now on being able to deliver to support the ramps that are going on around the industry. Bren can talk size of that.

Speaker #6: And there's a huge premium right now on being able to deliver to support the ramps that are going on around the industry. And then Bren can talk size of that.

Speaker #2: Yeah. And what I meant by that was, look, there's a general view of spending into next year and what that would imply. There are certainly some bullish cases.

Bren Higgins: Yeah. What I meant by that was, look, there's a general view of spending into next year and what that would imply. There's certainly some bullish cases, as we think about scenarios, we go, Okay, based on that view, what if demand was 10% higher? What if 20% was higher? How does that then translate back into where supply would line up to that demand, and where do we need to go work or think about adding and so on. That's what I meant is that, look, as we look at, again, it assumes all peer companies can deliver to it because customers, it'd be great if I can deliver, if others can't, then that's problematic. In general, we will take the cost of that flexibility in terms of ensuring our capacity exists

Speaker #2: And so as we think about scenarios, we go, okay, so based on that view, what if demand was 10% higher? What if it was 20% higher?

Speaker #2: And then how does that then translate back into where supply would line up to that demand? And where do we need to go, work, or think about adding, and so on?

Bren Higgins: How does that then translate back into where supply would line up to that demand, and where do we need to go work or think about adding and so on. That's what I meant is that, look, as we look at, again, it assumes all peer companies can deliver to it because customers, it'd be great if I can deliver, if others can't, then that's problematic. In general, we will take the cost of that flexibility in terms of ensuring our capacity exists

Speaker #2: So that’s what I meant, is that, look, as we look at—and again, it assumes that all peer companies can deliver to it, because customers... It’d be great if I can deliver, but if others can’t, then that’s problematic.

Speaker #2: But in general, we will take the cost of that flexibility in terms of ensuring our capacity exists. I think, as it relates to components, the risk of long lead-time materials is very low because of the value of these products.

Richard Wallace: I think as it relates to components, the risk of long lead time material is very low because of the value of these products, how much value they add, and the ability that it's sustained, and particularly with demand that's broad across different technology nodes. In the long term, certainly around certain product types, I'm willing to make bets from an inventory point of view to ensure I'm in a position to support what customers might need. That's how we think about it.

Rick Wallace: I think as it relates to components, the risk of long lead time material is very low because of the value of these products, how much value they add, and the ability that it's sustained, and particularly with demand that's broad across different technology nodes. In the long term, certainly around certain product types, I'm willing to make bets from an inventory point of view to ensure I'm in a position to support what customers might need. That's how we think about it.

Speaker #2: How much value they add, and the ability to sustain them—particularly with demand that's broad across different technology nodes. So, in the long term, certainly around certain product types, I'm willing to make bets from an inventory point of view to ensure I'm in position to support what customers might need.

Speaker #2: And so that's how we think about it.

Speaker #5: Got it. That's helpful. So my follow-up—so you're effectively suggesting WC next year somewhere in the range of, I think some of you already mentioned, around 190, give or take.

Stacy Rasgon: Got it. That's helpful. For my follow-up, you're effectively suggesting WFE next year somewhere in the range of, I think somebody already mentioned, around 190, give or take. Your 2030 model had 215, which isn't that much higher than that. I think it also had a semi market of $1.4 trillion that we seem likely to hit this year. Is there any thought, either qualitative or quantitative, on that 2030 model, in the wake of what we've seen certainly over the last couple of quarters of this year? How do we think about that in the context of what we're seeing now in terms of the industry?

Speaker #5: And your 2030 model had $215 billion, which isn't that much higher than that. And I think it also had a semi market of $1.4 trillion that we seem likely to hit this year.

Speaker #5: Do you have any thoughts, either qualitative or quantitative, on that 2030 model in the wake of what we've seen, certainly over the last couple of quarters of this year?

Stacy Rasgon: Is there any thought, either qualitative or quantitative, on that 2030 model, in the wake of what we've seen certainly over the last couple of quarters of this year? How do we think about that in the context of what we're seeing now in terms of the industry?

Speaker #5: How should we think about that in the context of what we're seeing now, in terms of?

Richard Wallace: Well, yeah, Stacy, that's a very good point. We also couldn't have imagined some of the pricing increases that have driven up the revenue for semi this year, for example. Some of it has been price-driven. What we really were trying to do with 2030 was give a, what would the industry look like if it's growing at a high single digit for the semi industry, and capital intensity continues to go along at its level and Process Control strengthens and we gain share. We said the caveat to that is we really don't know what it's going to build out. I think even at Investor Day, since then, things have strengthened inside the industry. We were trying to give a ballpark range of that.

Rick Wallace: Well, yeah, Stacy, that's a very good point. We also couldn't have imagined some of the pricing increases that have driven up the revenue for semi this year, for example. Some of it has been price-driven.

Speaker #2: Well, yeah, Stacy,

Speaker #6: That's a very good point. We also couldn't have imagined some of the pricing increases that have driven up the revenue for semi this year, for example.

Speaker #6: So, some of it has been price-driven. What we really were trying to do with 2030 was give a sense of what the industry would look like if it's growing at a high single-digit rate for the semi industry, and capital intensity continues along at its current level, and process control strengthens and we gain share.

Rick Wallace: What we really were trying to do with 2030 was give a, what would the industry look like if it's growing at a high single digit for the semi industry, and capital intensity continues to go along at its level and Process Control strengthens and we gain share. We said the caveat to that is we really don't know what it's going to build out. I think even at Investor Day, since then, things have strengthened inside the industry. We were trying to give a ballpark range of that.

Speaker #6: But we said the caveat of that is we really don't know what it's going to build out. And I think, even at Investor Day, since then, things have strengthened inside the industry.

Speaker #6: But we were trying to give a ballpark range of that. I think more importantly is, if you envision that the market's going to be much higher than that once we normalize for some of this pricing a little bit, then the process control intensity—we feel pretty confident about that.

Richard Wallace: I think more importantly is if you envision that the market's going to be much higher than that once we normalize for some of this pricing a little bit, the Process Control intensity, we feel pretty confident about. If you have more capital required, we would exceed the model that we laid out for 2030, that's how that would work. We're still a long way. We only had our Investor Day in March, and here we are in July, we're in no position to reset anything as it pertains to 2030.

Rick Wallace: I think more importantly is if you envision that the market's going to be much higher than that once we normalize for some of this pricing a little bit, the Process Control intensity, we feel pretty confident about. If you have more capital required, we would exceed the model that we laid out for 2030, that's how that would work. We're still a long way. We only had our Investor Day in March, and here we are in July, we're in no position to reset anything as it pertains to 2030.

Speaker #6: So, if you have more capital required, then we would exceed the model that we laid out for 2030. I mean, that's how that would work.

Speaker #6: But we're still a long way off. I mean, we only had our Investor Day in March, and here we are in July. So, we're in no position to reset anything as it pertains to 2030.

Speaker #2: I think, Stacy, what's important to take into consideration is, first of all, it turns out it's bigger than we've proven over time. We know how to scale our business.

Bren Higgins: Stacy, what's important to take into consideration is, first of all, it turns out it's bigger, and that we've proven over time we know how to scale our business. To Rick's point is that if you think about long-term assumptions of semiconductor revenue and capital intensity rising modestly, in that model we had in semiconductor revenue at 11% and wafer equipment at 12%. There's certainly different views of higher capital intensity, but pricing could be a factor in that. KLA share of that overall market would grow 150 basis points ±25 basis points from where we are in 2025. The financial model underneath that growth would deliver the way we laid it out in terms of incremental margins and so on.

Speaker #2: And so, to Rick's point, if you think about long-term assumptions—semiconductor revenue, capital intensity rising modestly, and that model we had in semiconductor revenue at 11% and wafer equipment at 12%—there are certainly different views of higher capital intensity.

Bren Higgins: There's certainly different views of higher capital intensity, but pricing could be a factor in that. KLA share of that overall market would grow 150 basis points ±25 basis points from where we are in 2025. The financial model underneath that growth would deliver the way we laid it out in terms of incremental margins and so on.

Speaker #2: But pricing could be a factor in that. And KLA's share of that overall market would grow 150 basis points, plus or minus 25 basis points, from where we are in 2025.

Speaker #2: And the financial model underneath that growth would deliver the way we laid it out in terms of incremental margins and so on. So I think, when you look at these target models, a lot of it is really about the credibility of, okay, how do the assumptions really look?

Bren Higgins: I think when you look at these target models, a lot of it is really about the credibility of, okay, how do the assumptions really look? Against those assumptions, we know we can scale our business to meet it, the financial model, as it has in prior Investor Day public targets and public models, we can execute the financial model consistent with what we presented. I think that's how to think about it.

Speaker #2: And against those assumptions, we know we can scale our business to meet them, and that the financial model, as it has in prior Investor Day public targets and public models, we can execute the financial model consistent with what we presented.

Speaker #2: So, I think that's how to think about it.

Speaker #6: And one more thing, Stacy. I think we're really good at creating systems that are valuable to our customers for process control and engaging with them.

Richard Wallace: One more thing, Stacy, I think we're really good at creating systems that are valuable to our customers for process control and engaging with them. We are not very good at forecasting.

Rick Wallace: One more thing, Stacy, I think we're really good at creating systems that are valuable to our customers for process control and engaging with them. We are not very good at forecasting.

Speaker #6: We are not very good at forecasting.

Speaker #5: Got it. I think it's an unsolved problem in the industry, anyway.

Stacy Rasgon: Got it. I think it's an unsolved problem in the industry anyways.

Speaker #1: Thank you. We'll take our next question from Melissa Weathers with Deutsche Bank. Your line is now open.

Operator: Thank you. We'll take our next question from Melissa Weathers with Deutsche Bank. Your line is now open.

Speaker #7: Hi. Thank you for the question. I wanted to ask—maybe go back to that EPC side. And the Orbitek thesis that you guys have laid out years ago, it seems like that's playing out nicely, and you saw some upside in that business this quarter.

Melissa Weathers: Hi. Thank you for the question. I wanted to ask, maybe go back to that EPC side, and the Orbotech thesis that you guys have laid out years ago. It seems like that's playing out nicely, and you saw some upside in that business this quarter. Any update to how you're thinking about the longer-term growth rate of that business? I think at the Analyst Day, you said mid to high single digits, if I have that right. Any updated thoughts on how you're thinking about that business?

Speaker #7: So, any update to how you're thinking about the longer-term growth rate of that business? I think at panelist day you said up mid- to high-single digits, if I have that right.

Speaker #7: So, any updated thoughts on how you're thinking about that business?

Speaker #2: Yeah, it's pretty exciting what's happening with high-performance compute and how that's translating into opportunities, both for specialty semi, which is in our process tools, but also in the ex-urban specialty semi and PCBs.

Bren Higgins: Yeah, it's pretty exciting what's happening with high-performance compute and how that's translating into opportunities, both for specialty semi, which is in our process tools, but also in the Orbotech with specialty semi and PCB. In multiple PCB businesses, with the transition to substrates and high-density PCBs, it's creating a lot of opportunities for us, and certainly the value of those boards is much higher in these new devices. We're encouraged by what we're seeing there. I wish I could ship more, and it certainly turned on much faster than we thought. I would expect the long-term growth rate. Look, we'll have to see how it plays out over time. I would say in the long term, the mid part of that K here is out.

Speaker #2: And so, in multiple PCB businesses, with the transition to substrates and high-density PCBs, it's creating a lot of opportunities for us, and certainly the value of those boards is much higher in these new devices.

Speaker #2: So we're encouraged by what we're seeing there. I wish I could ship more. It certainly turned on much faster than we thought. I would expect the long-term growth rate, and look, we'll have to see how it plays out over time.

Bren Higgins: We're encouraged by what we're seeing there. I wish I could ship more, and it certainly turned on much faster than we thought. I would expect the long-term growth rate. Look, we'll have to see how it plays out over time. I would say in the long term, the mid part of that K here is out.

Speaker #2: But I would say, in the longer term, the mid part of that K year is out. I would say it's likely somewhere in the high single-digit range.

Bren Higgins: I would say it's likely somewhere in the high single-digit range, we'll see over several years whether there's a structural growth element that materializes as part of the business. With this business, it's been historically more capacity centric and tied to mobility, that high-performance compute is changing this market, we'll have to see how it plays out. It is a new change and something that we're going to have to monitor. We're pretty excited about our positioning and our ability to differentiate at the board and the substrate integrates into this very valuable package.

Bren Higgins: I would say it's likely somewhere in the high single-digit range, we'll see over several years whether there's a structural growth element that materializes as part of the business.

Speaker #2: And we'll see over several years whether there's a structural growth element that materializes in this part of the business. This business has historically been more capacity-centric and tied to mobility, but high-performance compute is changing this market.

Bren Higgins: With this business, it's been historically more capacity centric and tied to mobility, that high-performance compute is changing this market, we'll have to see how it plays out. It is a new change and something that we're going to have to monitor. We're pretty excited about our positioning and our ability to differentiate at the board and the substrate integrates into this very valuable package.

Speaker #2: And we'll have to see how it plays out. But it is a new change and something that we're going to have to monitor. But we're pretty excited about our positioning and our ability to differentiate as the board and the substrate integrate into this very valuable package.

Speaker #7: Thank you. And maybe along those lines, the advanced packaging business specifically—that I think you guys took up to $1.1 billion this year—the drivers behind that revision, is that just the TAM is growing faster or is that market share gains?

Melissa Weathers: Thank you. Maybe along those lines, the advanced packaging business specifically that I think you guys took up to $1.1 billion this year, the drivers behind that revision, is that just the TAM is growing faster, or is that market share gains? Any color on that, and then is there any incremental, like what's the incremental OPEX for those kinds of tools? Is that less R&D intensive, or how do we think about the investments that you guys are doing there?

Speaker #7: Is there any color on that? And then, is there any incremental—what's the incremental opex for those kinds of tools? Is that less R&D intensive, or how do we think about the investments that you guys are doing there?

Speaker #6: I think the main drivers for that are the accelerated share and adoption of some of our systems that were designed for front-end. And so that's been great to see, but it was kind of a continuation of the trend that we saw.

Richard Wallace: I think the main drivers for that is the accelerated share and adoption of some of our systems that were designed for front end. It's been great to see, but it was kind of a continuation of the trend that we saw. Even our folks who were right in the middle of it were surprised by the magnitude of that. It hasn't taken a ton of R&D because it has taken some, I'm not saying it's not any, but a lot of it was leveraging the portfolio that we already had, and it was our customers pulling us into that. If you could see the types of systems or substrates that are being leveraged now, that we were waiting and we've been waiting for a long time for things like SOIC or hybrid bonding to drive those needs.

Rick Wallace: I think the main drivers for that is the accelerated share and adoption of some of our systems that were designed for front end. It's been great to see, but it was kind of a continuation of the trend that we saw. Even our folks who were right in the middle of it were surprised by the magnitude of that.

Speaker #6: But even our folks who were right in the middle of it were surprised by the magnitude. And it hasn't taken a ton of R&D, though it has taken some.

Rick Wallace: It hasn't taken a ton of R&D because it has taken some, I'm not saying it's not any, but a lot of it was leveraging the portfolio that we already had, and it was our customers pulling us into that. If you could see the types of systems or substrates that are being leveraged now, that we were waiting and we've been waiting for a long time for things like SOIC or hybrid bonding to drive those needs.

Speaker #6: I mean, I'm not saying it's none, but a lot of it was leveraging the portfolio that we already had, and it was our customers pulling us into that.

Speaker #6: And if you could see the types of systems or substrates that are being leveraged now, that we were waiting—and we've been waiting for a long time—for things like SOIC or hybrid bonding to drive those needs.

Speaker #6: And now we're seeing, and there's even more coming. So we look at things like the wafer bonding and binding, then you've got more opportunity. So I think we're really well positioned.

Richard Wallace: Now we're seeing, and there's even more coming. We look at things like die-to-wafer bonding, then you've got more opportunities. I think we're really well-positioned. We have had to make investments, but we're extremely excited about what we've seen and the growth that it's providing for us.

Rick Wallace: Now we're seeing, and there's even more coming. We look at things like die-to-wafer bonding, then you've got more opportunities. I think we're really well-positioned. We have had to make investments, but we're extremely excited about what we've seen and the growth that it's providing for us.

Speaker #6: We have had to make investments, but we're extremely excited about what we've seen and the growth that it's providing for us.

Speaker #2: On the market side, I'd say the market is accelerating. We started the year thinking the market was somewhere around 20%. I think now we believe the market is at a mid- to high-30s growth rate.

Bren Higgins: On the market side, I'd say the market is accelerating. We started the year thinking the market was somewhere in around 20%. I think now we think the market is in kind of a mid to high 30s growth rate. Of course, our business, within that growing, as we said in the prepared remarks, close to 2x that. We'll see. It tends to be shorter lead time, so you have to respond quickly. Certainly what's happening on the logic front, both in traditional or in the CoWoS type packaging, but also in the hybrid bonding opportunities, which is driving the need for more capability. Higher value systems in the portfolio that we're pretty well positioned to address these opportunities. I think that you continue to see growth in those areas, as you move into next year.

Speaker #2: And then, of course, our business within that is growing, as we said in the prepared remarks, close to 2x that. So we'll see. It tends to be shorter lead times.

Bren Higgins: It tends to be shorter lead time, so you have to respond quickly. Certainly what's happening on the logic front, both in traditional or in the CoWoS type packaging, but also in the hybrid bonding opportunities, which is driving the need for more capability. Higher value systems in the portfolio that we're pretty well positioned to address these opportunities. I think that you continue to see growth in those areas, as you move into next year.

Speaker #2: So you have to respond quickly. But certainly, what's happening on the logic front—both in traditional or in the CoWoS-type packaging, but also in the hybrid bonding opportunities—is driving the need for more capability.

Speaker #2: So, higher-value systems in the portfolio—we're pretty well positioned to address these opportunities. And I think that you'll continue to see growth in those areas as you move into next year.

Speaker #7: Thank you.

Melissa Weathers: Thank you.

Speaker #1: Thank you. We'll take our next question from Ateef Malik with Citi. Your line is now open.

Operator: Thank you. We'll take our next question from Atif Malik with Citi. Your line is now open.

Speaker #8: Hi, thank you for taking my question. I think you called out visibility of investments into 2027. Are there any signs—such as advanced payments or deposits—that you're seeing which are different from prior cycles and are giving you confidence in the sustainability of this cycle?

Atif Malik: Hi, thank you for taking my question. Rich, you called out the visibility of investments into 2027. What signs, if any, that it's advanced payments or deposits that you're seeing that are different from prior cycles that is giving you the confidence in sustainability of this cycle?

Speaker #6: Well, I think it's much more our customers sharing with us the demand that they're seeing. And we have the ability to do some verification with other parties because we're involved in conversations with them.

Richard Wallace: Well, I think it's much more our customers sharing with us the demand that they're seeing, and we have the ability to do some verification with other parties because we're involved in conversations with them. Just give you an example of what we see for advanced compute in terms of the demand and talking to some of the players who are trying to get that capacity. We know that there's a shortage of those capabilities. It's not hard to see what's happened with memory in terms of demands and what the statements are in terms of when we think supply will resume back to equilibrium. It's a ways out. There are a lot of signs out there that these investments are going to continue at a very high rate, and a lot of the conversation we're having with customers is to be able to support those ramps.

Rick Wallace: Well, I think it's much more our customers sharing with us the demand that they're seeing, and we have the ability to do some verification with other parties because we're involved in conversations with them. Just give you an example of what we see for advanced compute in terms of the demand and talking to some of the players who are trying to get that capacity.

Speaker #6: Just giving you an example of what we see for advanced compute in terms of the demand, and talking to some of the players who are trying to get that capacity.

Speaker #6: We know that there's a shortage of those capabilities. It's not hard to see what's happened with memory in terms of demands, and what the statements are in terms of when we think supply will resume back to equilibrium.

Rick Wallace: We know that there's a shortage of those capabilities. It's not hard to see what's happened with memory in terms of demands and what the statements are in terms of when we think supply will resume back to equilibrium. It's a ways out. There are a lot of signs out there that these investments are going to continue at a very high rate, and a lot of the conversation we're having with customers is to be able to support those ramps.

Speaker #6: It's a ways out. So, there are a lot of signs out there that these investments are going to continue at a very high rate, and a lot of the conversations we're having with customers are to be able to support those ramps.

Speaker #6: So I have very few concerns about what's going to happen in '27. It's pretty clear that the build-out continues.

Richard Wallace: I have very few concerns about what's going to happen in 2027. It's pretty clear that the build-out continues.

Rick Wallace: I have very few concerns about what's going to happen in 2027. It's pretty clear that the build-out continues.

Speaker #8: Great. And one of your customers, SpaceX, has publicly talked about improving fab manufacturing efficiencies, cutting down steps and the cycle time, and all that.

Atif Malik: Great. One of your customers, SpaceX, and publicly, Terafab, has talked about improving fab manufacturing efficiencies, cutting down steps and the cycle time and all that, and I was curious if you guys are engaged on that project.

Speaker #8: And I was curious if you guys are engaged on that project.

Speaker #6: Well, so we don't talk about any specific customer engagements, but you can imagine that if anybody wants to have any kind of innovation or drive new capabilities in the semiconductor industry, we're going to be on the list of the stops that they make.

Richard Wallace: We don't talk about any specific customer engagements, but you can imagine that if anybody wants to have any kind of innovation or driving new capabilities in the semiconductor industry, we're going to be along the list of the stops that they make. We don't talk about specific engagements.

Rick Wallace: We don't talk about any specific customer engagements, but you can imagine that if anybody wants to have any kind of innovation or driving new capabilities in the semiconductor industry, we're going to be along the list of the stops that they make. We don't talk about specific engagements.

Speaker #6: But we don't talk about specific engagements.

Speaker #8: Thank you.

Atif Malik: Thank you.

Speaker #1: Thank you. And we have time for one final question. We'll go to Shane Brett with Morgan Stanley. Your line is now open.

Operator: Thank you. We have time for one final question. We'll go to Shane Skerry with Morgan Stanley. Your line is now open.

Speaker #4: Thank you for letting me ask a question. So my first question is, I think there's a general understanding that process control intensity has been a bit unfavorable in 2026 as we're adding quite a bit of N+1 and N+2 nodes, like 3 nanometer for logic.

Shane Skerry: Thank you for letting me ask the question. My first question is, I think there's a general understanding that process control intensity has been a bit unfavorable in 2026, as we're adding quite a bit of N+1, N+2 nodes, like three nanometer for logic. As you think about the DRAM and leading logic node mix in 2027, do you think the process control intensity is favorable, i.e., do you see node mix as a tailwind for KLA to outgrow WFE in 2027?

Shane Brett: Thank you for letting me ask the question. My first question is, I think there's a general understanding that process control intensity has been a bit unfavorable in 2026, as we're adding quite a bit of N+1, N+2 nodes, like three nanometer for logic. As you think about the DRAM and leading logic node mix in 2027, do you think the process control intensity is favorable, i.e., do you see node mix as a tailwind for KLA to outgrow WFE in 2027?

Speaker #4: If you think about the DRAM and leading logic node mix in 2027, do you think the process control intensity is favorable? I mean, do you see node mix as a tailwind for KLA to outgrow WFE in '27?

Speaker #2: Well, as I said earlier, I think the construct is pretty good. I mean, part of the first half of the year was just—we could have built more.

Bren Higgins: Well, as I said earlier, I think the construct is pretty good. Part of the H1 of the year was just, if we could've built more, we could've shipped more. We talked a lot about the reasons for that. The other thing is, I'm pretty encouraged by the leading end project investment, but also you have a lot of new node investment, that's always good to see less of that in 2026. Finally, I think in DRAM, you'll see you have greenfield fabs, I think that the greenfield opportunity and the retooling of those fabs creates a new opportunity as well. One of the things in DRAM is, given whether it's HBM or even conventional DRAM, you can imagine that where prices are, how that translates into margins, that the value of yield is pretty high.

Speaker #2: We could have shipped more, and we talked a lot about the reasons for that. The other thing is, I’m pretty encouraged by the leading-edge, broad-based investment, but also you have a lot of new node investment.

Speaker #2: And so that's always good too. You had less of that in '20, 2026. Finally, I think in DRAM, you'll see greenfield fabs, and so I think that the greenfield opportunity and the retooling of those fabs creates a new opportunity as well.

Bren Higgins: Finally, I think in DRAM, you'll see you have greenfield fabs, I think that the greenfield opportunity and the retooling of those fabs creates a new opportunity as well. One of the things in DRAM is, given whether it's HBM or even conventional DRAM, you can imagine that where prices are, how that translates into margins, that the value of yield is pretty high.

Speaker #2: One of the things in DRAM is, given whether it's HBM or even conventional DRAM, you can imagine that, where prices are and how that translates into margins, the value of yield is pretty high.

Speaker #2: And so I think the economics line up pretty well with growing intensity or opportunities for us in 2027. Finally, packaging will continue to inflect, and I expect that to be pretty strong as well.

Bren Higgins: I think the economics line up pretty well with growing intensity or opportunities for us in 2027. Finally, packaging will continue to flex, and I expect that to be pretty strong as well. You will also see some greenfield investment in flash and while flash isn't our strongest market, we think that that would create some opportunities for us, too. Couple all that with supply availability that is better than where we are today, I feel pretty good about our ability to continue to execute against the vision we laid out at Investor Day.

Speaker #2: You will also see some greenfield investment in flash, and with flash in our strongest market, we think that that would create some opportunities for us, too.

Speaker #2: So you couple all that with supply availability that is better than where we are today, and I feel pretty good about our ability to continue to execute against the vision we laid out at Investor Day.

Bren Higgins: Couple all that with supply availability that is better than where we are today, I feel pretty good about our ability to continue to execute against the vision we laid out at Investor Day.

Speaker #4: Got it. And for my follow-up, I totally understand KLA has been a consistent share gainer over the last decade, but some of your larger competitors have talked a bit more about process control traction.

Shane Skerry: Got it. For my follow-up, I totally understand KLA has been a consistent share gainer over the last decade, but some of your larger competitors have talked a bit more about process control traction. Just has there been any change to the competitive environment in process control? Thank you.

Shane Brett: Got it. For my follow-up, I totally understand KLA has been a consistent share gainer over the last decade, but some of your larger competitors have talked a bit more about process control traction. Just has there been any change to the competitive environment in process control? Thank you.

Speaker #4: Has there been any change to the competitive environment in process control? Thank you.

Speaker #6: No, no, no change. I mean, if anything, we continue to feel really good about our share position and the critical markets we've been in.

Richard Wallace: No. No change. If anything, we continue to feel really good about our share position in the critical markets we've been in. We're definitely seeing positive momentum in markets where we've held less share, like e-beam. We talked about the process control intensity going up in packaging. No, we don't see anything to support the idea that we're anything but net share gainers in process control over the foreseeable future.

Rick Wallace: No. No change. If anything, we continue to feel really good about our share position in the critical markets we've been in. We're definitely seeing positive momentum in markets where we've held less share, like e-beam. We talked about the process control intensity going up in packaging. No, we don't see anything to support the idea that we're anything but net share gainers in process control over the foreseeable future.

Speaker #6: We're definitely seeing positive momentum in markets where we've held less share, like e-beam. We talked about the process control intensity going up in packaging.

Speaker #6: So, no, we don't see anything to support the idea that we're anything but net share gainers in process control over the foreseeable future.

Speaker #2: Can we gain share at a time when a number of our competitors have been able to ship into fabs in China that we haven't been able to ship into?

Bren Higgins: We've gained share at a time where a number of our competitors have been able to ship into fabs in China that we haven't been able to ship into. To Rick's earlier point, where we can compete, we generally win. Even in that case where there's been some share movement, even though overall we've been able to grow our share, if we could have competed in those opportunities, I think it'd be even higher.

Speaker #2: So, to Rick's earlier point, where we can compete, we generally win. And so, even in that case where there's been some share movement, even though overall we've been able to grow our share, we could have competed in those opportunities.

Speaker #2: I think it would be even higher.

Speaker #6: Yeah. When we're 6x our nearest rival, I think oftentimes, in terms of overall share, they don't necessarily get a view of the whole landscape.

Richard Wallace: When we're 6x our nearest rival, I think oftentimes, in terms of overall share, that they don't necessarily get a view of the whole landscape. When they win some orders, they think they're gaining share.

Rick Wallace: When we're 6x our nearest rival, I think oftentimes, in terms of overall share, that they don't necessarily get a view of the whole landscape. When they win some orders, they think they're gaining share.

Speaker #6: So when they win some orders, they think they're gaining share.

Speaker #4: Got it. Thank you very much.

Shane Skerry: Got it. Thank you very much.

Shane Brett: Got it. Thank you very much.

Speaker #3: Right. Thank you very much, Shane. And thank you, everybody, for your interest in KLA and for your participation. We look forward to seeing many of you throughout the quarter as we participate in different conferences and meetings.

Kevin Kessel: Great. Thank you very much, Shane, and thank you, everybody, for your interest in KLA and for your participation. We look forward to seeing many of you throughout the quarter as we participate in different conferences and meetings. With that, I'll turn the call back over to Angela, the operator, to close it out.

Speaker #3: With that, I'll turn the call back over to Angela at the operator to close it out.

Speaker #1: Thank you. This concludes the KLA Corporation June quarter 2026 earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.

Operator: Thank you. This concludes the KLA Corporation Q2 2026 earnings call and webcast. Please disconnect your line at this time and have a wonderful day. Goodbye.

Q4 2026 KLA Corp Earnings Call

Request DemoDemo

KLA

Earnings